Companies that fail to transform themselves in 2007 to survive in a demand economy will soon be left behind.

Looking forward to the new year, we might ask ourselves what to do differently to improve our current competitive advantage. If you haven’t already started a lean transformation, now is the time. Global competition will only become stiffer in coming years, and companies that fail to transform themselves to create the agility and responsiveness to survive in a demand economy will soon be left behind.

The motivation to transform your organization can come from several sources. The most obvious is the “burning platform,” a situation so serious that jumping off the old approach and reinventing is the only hope for survival. A second motivator is the emergence of serious threats, such as new or stronger competitors, disruptive technologies, substitute products and the bargaining power of mega-buyers and suppliers.

Whatever your reason for transforming your company, the process requires, above all, committed leadership. Leadership requires vision, customer-focus, communication, innovation, alignment, measurement, discipline and continuous improvement.

When you think about great American companies, you think of the visionary leaders who found innovative ways to solve common problems. As those companies matured, the innovators left and their entrepreneurial spirit faded. Markets became saturated with competitors offering roughly the same products and services. The mantra became “new, improved” – small changes to keep up with the competition – rather than “new, new” – innovations customers valued. Passionate leadership was replaced by professional management. A new generation of leaders sequestered themselves in corner offices to pore over financial reports. Companies became victims of management by the numbers.

Today’s lean leaders must have a renewed passion for what they do, fueled by personal involvement in listening to customers and improving the processes that solve customer problems. In the past, leaders perched at the top of the organizational chart could distance themselves from these tasks. That distance kept them from recreating the passion for their products and services that drives continuous improvement and growth.

The cultural change that is essential to a lean transformation is not an uprising brought about by a discontented mass of employees, but a revolution stirred by the company’s leaders. Senior leaders must be personally involved in the improvement process. If senior leaders delegate this responsibility, the company will have trouble transforming itself.

Excitement and Urgency
Transformation starts with a vision that creates the excitement and urgency that will be the catalyst for change. The new culture focuses on customers, values speed and innovation, and recognizes that employees are partners in achieving goals. It all starts with a mission established by the company’s leaders.

The mission and vision should be clear, succinct and compelling. Senior management must be involved in developing the mission (purpose), vision (direction), and values that employees can identify with and leaders can use to drive behavior. Another key factor affecting the vision is leadership’s connection with people in the organization.

Making contact with employees may include regular all-employee meetings, participation in department meetings, columns in firm newsletters, regular e-mail or voicemail messages, having lunch with employees and being visibly involved by walking around often and unannounced.

The most effective leaders immerse themselves in the transformation. They spend more time talking to customers and employees than sitting in their offices. They care more about studying their organization’s value stream than studying its stock performance. Each day they display their personal commitment to and involvement in the activities that will create and sustain growth. They prefer action over theory. They lead by example, not by sending memos.

Perhaps most importantly, effective leaders are passionate about what their organizations do. Probably 70 to 80 percent of today’s leaders have no passion for what they sell, and yet, when you look at the leaders of some of our greatest companies, the one attribute they share is a passion for their businesses. Look at Bill Gates or Michael Dell, Herb Kelleher at Southwest Airlines, Jeff Bezos at Amazon.com, Charles Schwab and Starbucks’ Howard Schultz, to name a few.

It’s one of the reasons Toyota doesn’t hunt for outside presidents and CEOs to lead the company: They haven’t lived Toyota and cannot understand – or feel passionate about – its culture.

Partners in Change
Although leadership is perhaps the single most important driver of a lean transformation, it’s wasted if employees aren’t partners in the journey. A transformational management system relies on a strong and complementary team in which employees are partners in change. Kaizen breakthrough events get people involved, open their eyes to new possibilities and give them permission to initiate positive change. Enthusiastic employees start to view processes through “kaizen eyes,” noticing opportunities for improvement that were hidden in plain sight before people knew how to observe. If your organization holds tight to layers of management and the old command-and-control mentality, you will have trouble with this new management system.

Even with committed leadership and enthusiastic employees, a successful transformation requires you to create and sustain a superior value proposition. This sets your company up for long-term growth and success. It puts ever-increasing distance between you and your competitors. It aligns all activities and improves efficiency through a singular focus. It boosts market share and locks in customers. It provides value no one else can match easily. You create and sustain a superior value proposition in four ways:

· Operational effectiveness – You are the most productive and effective organization winning the race against competitors.
· Value innovation – You are closest to the customers’ real needs.
· Differentiation – You offer the most valuable products and services.
· New value proposition – You change the rules to run a different race.

Operational effectiveness must come first. It requires assimilating and implementing the very best lean practices – such as eliminating waste – in your value chain to compete effectively. Through operational excellence, you run the same race faster.

Yet operational excellence alone will not suffice forever. The strongest competitors who achieve high levels of performance will realize that they cannot keep running this race forever and they must choose to run a different race.

You choose to run a different race by strategic positioning, which involves plotting an integrated strategy that provides a unique, long-term advantage in your chosen space. The new value proposition must create sustainable long-term growth in economic value as measured by return on invested capital.

You use strategic positioning derived from value innovation, differentiation and a new value proposition to make your company unique because being unique creates wealth and long-term growth. Every industry holds the potential for someone to run a different race, to redefine the rules so dramatically that competitors must scramble to survive or abandon the race.

To grow, you need a new approach to observing, listening and learning from your customers. You must be guided by the voice of the customer. If you think of your company in terms of the traditional products and services it provides – the “we make stuff, you buy stuff” mentality – you are limiting your ability to grow by partnering with customers. Once you have an intimate relationship with your customers, you can focus on value innovation – shifting from the supply side, from an inside-out attention to product and service features, to the demand side and the voice of the customer. In a demand economy, a company exists to solve customer problems. This outside-in perspective smashes the narrow product/service mentality that drives most organizations.

Value innovation doesn’t replace product innovation any more than product innovation replaces operational excellence. Becoming a solutions provider means bundling activities, services and products to create superior value for your targeted customers. The right mix can create needs your customers never knew they had. Done correctly, it can create barriers that are much more difficult for your competition to overcome and make price a relative non-issue.

A properly executed solutions provider strategy means your company, your assets and your people become intertwined with those of your targeted customers. Few, if any, of your competitors can quickly step into your shoes, because the boundary between your own operations and those of your customers is seamless.

Value innovation allows you to distance your company from the competition through two complementary initiatives: becoming a solutions provider, and delivering radically superior value at a low cost. It’s the “sweet spot” where customer needs, buyer value and competitive price meet. Once you claim that spot, your competitors will be hard-pressed to take it from you.

Your lean transformation means becoming a customer-driven company. Not engineering- or marketing-driven. Not shareholder-driven. Not product-driven. Not industry- or competitor- driven. Not even leadership-driven. To become a customer-driven company, you must become a solutions provider, using value innovation to redefine who you serve and how you serve them.

To leverage lean transformation for growth, you need to find the right platform that fits your company’s vision, capabilities, traditions and competitive environment, and your people must have the resources and responsibilities to attack growth projects. Armed with operational excellence and aligned demand and supply chains, you will be prepared to leverage lean for growth and distinguish yourself from the competition. You will be prepared to win. And you will.

Anand Sharma is CEO and co-founder of TBM Consulting, which is based in Durham, N.C., and focuses on business performance improvement. Sharma can be contacted at 800-438-5535.