Excerpted from THE LEAN CEO: Leading the Way to World-Class Excellence by Jacob Stoller.

Take a look at the following three scenarios:

• A recreational trailer manufacturer was forced into bankruptcyafter revenues dropped 60 percent during the 2009 recession.
• A medium-size hospital closed its doors amid rising costs, quality concerns, and growing competition from larger providers.
• A manufacturer of diesel engine components, dogged by chronic delivery problems, poor labor relations, and the loss of a key patent, shut down its plant and sold its assets to a large automotive manufacturer.

Scenarios like these are, sadly, not unusual. Layoffs, plant closings, downsizings, cutbacks, and offshoring are so common that they no longer have any shock value; there’s a certain air of inevitability to it all. We just say “too bad” and move on. In the meantime, millions of lives are thrown into turmoil.

There’s a twist to the three scenarios above, however: they never happened. In each case, the CEO defied the odds after discovering and adopting Lean.

The results were astonishing. The organizations excelled not only in terms of financial performance but also in areas such as employee engagement, customer satisfaction, and influence in the business community.

The CEOs, however, did not just apply a method. They adopted a way of thinking that is fundamentally different from what is taught in business schools.
Through this new set of glasses, they began to see their situations very differently. Instead of viewing their challenges as circumstances beyond their control, they saw how their organizations were laboring under a heavy burden of wasteful processes. We’re not talking about losses of a few percentage points here or there. This is waste on a monumental scale, enough to sink a company.

Waste as seen through the Lean lens is not something that can be eradicated with the stroke of a pen. Instead, it is distributed throughout the organization, often in small, barely visible increments. It takes enormous discipline to see it, more to eliminate it, and constant vigilance to prevent it from creeping back in.

Waste removal is an activity that requires the participation of every employee in the organization and a corporatewide commitment to continuous improvement that never ends.

To see the waste, the Lean CEOs turned much of their attention to an aspect of the organization that is neglected in modern business theory, so much so that we don’t have a name for it. The Japanese, however, do have a word: gemba, which means “the real place.” In the Lean context, this means the place where people create a product or service that customers pay for.

In an automotive factory, for example, gemba is the shop floor where people make cars. In a school, gemba is the classroom where teachers help students learn. In a hospital, gemba is found wherever doctors, nurses, or support staff members are providing care to patients. Through the Lean lens, everything else—administration, finance, human resources, sales, and even senior management—is there to support gemba.

Respect for the people who spend their days in gemba is one of the cornerstones of Lean. It is through their initiative that the breakthrough gains that characterize successful Lean transformations are achieved.

To empower this kind of participation, managers need to quickly rid themselves of the illusion that they know all the answers. On the contrary, Lean CEOs must be constantly inquiring and must do so openly.

All this goes against the grain of conventional management thinking. Managers are taught that by applying the professional skills they learned in business school, they can control what happens in gemba without actually being there. Gemba is something to be delegated, outsourced, managed from a distance. Furthermore, the employees in gemba are seen to be dispensable cogs rather than strategic assets.

Yet gemba is the aspect of any organization that has the most direct impact on the value that customers pay for. A customer can’t buy a great product design, a go-to-market strategy, or a powerful brand. In the end, the company has to deliver, and the work that makes this possible is ultimately the purpose and the livelihood of the organization. This work happens in gemba.