Organizations That Thrive off of Waste – Anti-Lean


The Lean Thinking Movement

The primary goal in Lean software development is to eliminate waste and optimize flow.  This is accomplished by applying the theory of constraints and reducing the time it takes to produce artifacts in areas of a process that take the most time.

Lean ideology is critical for private organizations who cannot survive unless they optimize their business.  Customers who give an organization money choose to do so solely because the organization provides the best product or service for a fair price.

As soon as another organization can produce something better, or cheaper, or a combination of the two, customers’ loyalty will promptly shift to the better organization.  Capitalism thrives off of this concept:  better products and services are created and refined due to competition.

Capitalism can be a beautiful thing, allowing free-enterprise to provide us with a high-tech culture, provides phenomenal products and services, creates jobs, and allows our economy to thrive.  However, some organizations do not thrive off of competition.

Thriving off of Waste

Some organizations actually thrive off of being wasteful.  Margins are improved by overproducing or extending the amount of time it takes to provide value.

For example, in his talk on Scrumban at the 2009 Austin Code Camp, Joe Ocampo described an insurance company who took longer to process claims because they made more money by doing so.

I am not exactly sure how they profit from this condition; perhaps it reduces their risk, or allows their investments to squeeze out more interest before they pay for a claim.

Milk The Government

The federal government has been doing business like this for years.  The government encourages wasteful contractors.  It is no secret that major contractors underbid government projects on purpose in order to get the contract.  Once out of money, the contractor simply asks for more.

Since everybody in the sector knows that the government operates like this, they are free to underbid by great margins, fully understanding they will not be able to complete the project with the original bid.

Contractors will extend time lines, get paid to create features that add no value, and perform a number of other tricks to squeeze as much milk from the government utter as possible.  How is this possible?  The answer is the opposite of way capitalism thrives:  lack of competition.

Since contractors only have one customer to satisfy, and they all know how that customer operates, they work together to pry as much cash out of government hands as possible.  One major contractor does the majority of the underbidding, while subcontractors negotiate for their slice of the pie.

Under these circumstances, efficiency, optimization, adding value, eliminating waste, and all of the other tenants of Lean thinking do not make any sense.  If a contractor changes to embrace Lean thinking, they provide a more valuable product but are not rewarded for it.

A Lean contractor would get paid less because the competition would underbid them.  The competition receives more money to create more waste and less value.  This type of business model has to stop!

“Change We Can Believe In”  - President Obama’s Campaign Slogan?

Companies who thrive off of waste destroy what is best about a capitalistic society.  The bigger a wasteful industry is, the more it hampers the economy, and sets back the great achievements of a culture.  Does anyone know how to change these industries?  Has anyone had success?

The biggest problem I am aware of is the Federal Government.  We have got to get them to change their ways.  President Obama has stated that he wants to improve the government’s way of doing business.

How do we start?

  1. gravatar

    # by Ryan Svihla - June 2, 2009 at 7:08 PM

    For insurance companies their primary cost is filing their customers claims. slowing the velocity of claim filing effectively gives them a lead time on payment versus outlay.

    In the meantime the cash flow difference can be used for whatever (hell put the difference in a 6 month tbill) .

    Your taking a valid comment and swaying it to a political party is unfortunate (last I saw there is a ton of government waste on either side of the aisle). But your point is sound otherwise.

  2. gravatar

    # by Michael Brennan - June 3, 2009 at 7:46 AM

    Thanks for the input on how insurance companies thrive Ryan. With regard to the political party, I do not subscribe to any political party.

    You are absolutely correct in stating that "there is a ton of government waste on either side of the aisle." I was merely stating what Obama's campaign slogan is, and what I hope will happen. I am sorry if you interpreted the mention of Obama and his campaign slogan as a political bias.

    However, this points out an interesting issue: today, the mere mention of a political figure or idea suggests alignment with a political party. This illustrates what is truly wrong with our political system.

    In my opinion, the two major political parties we have in the US are simply two organizations that struggle for their own power. They put their party's interests first instead of the American people. Frequently, their interests can also be what's best for the people, but the disconnect from what is truly important is the problem.

  3. gravatar

    # by Ryan Svihla - June 3, 2009 at 8:37 AM

    Thanks for the followup Michael. I agree completely, and gerrymandering encouraging extremists to hold office where they otherwise wouldn't certainly makes the already difficult 2 party system worse. We have problems fester for decades that should take weeks to resolve (deficit issues come to mind).

    Sorry for misunderstanding the outlay of bias there, it was my mistake.

  4. gravatar

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  5. gravatar

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