The Lean Machine: How Harley-Davidson Drove Top-Line Growth and Profitability with Revolutionary Lean Product Development

“With a fresh American approach, based on the iconic giant, Harley Davidson, Dantar Oosterwal makes the whole new concept of lean new product design and development clear and doable. If new product design is the last frontier for competitive companies, “The Lean Machine” is the guidebook you will want to take with you on the journey.” — Patricia E. Moody, “Fortune” magazine, “Manufacturing Hero”; and author of “The Big Squeeze,” “Powered by Honda,” and “The Incredible Payback” From near-extinction in the early eighties, the Harley-Davidson Company has risen to worldwide recognition for management excellence and innovation, and is a standout leader in the realm of product development. Part personal business journal, part big-picture analysis, and part step-by-step toolkit, “The Lean Machine” examines the groundbreaking application of lean manufacturing principles to product development at Harley-Davidson–a breakthrough that resulted in more products, faster cycles, and better quality, and that powered annual growth of more than 10 percent. Packed with little-known details about how the company came to reinvent the way it designs new products, and a broad overview of the fertile corporate climate that made it possible, “The Lean Machine” uncovers the power of Knowledge-Based Product Development to achieve predictable, positive results, without having to continually fix late-breaking problems and full-blown crises. It’s a formula for outstanding success that can be replicated or adapted to fit your own company’s needs.

DANTAR P. OOSTERWAL has led global innovation improvements as Vice President of Innovation at Sara Lee, as well as Director of Product Development at Harley-Davidson.

Introduction

Learning is not compulsory . . . neither is survival.

W. Edwards Deming

This book is written with one purpose in mind: it is intended to

help you improve the effectiveness and efficiency of your product

development system. The objective of this book is to provide you

with the insights necessary to develop more new products of higher

quality in less time with your existing organization. This is the story

of my personal journey of learning and discovery and is intended to

encourage you on your improvement journey, or perhaps persuade you

to embark.

In 2003 Harley-Davidson was awarded the Outstanding Corporate

Innovator (OCI) award by the Product Development Management

Association (PDMA). The OCI award was won based on

conventional phase gate thinking.1 Through the application of lean

principles to product development, the same organization reduced

their development time by half and quadrupled new product development

throughput. This book provides the organizational learning practices

and the knowledge-based development principles to enable your

organization to achieve similar or better results.

This is a true story, not a novel. Some poetic license has been

taken in the chronology of events to make the story meaningful to the

reader because, as with any good road trip, the learning journey does

not necessarily happen in a neat and orderly fashion. Any learning

journey has its fair share of wrong turns and dead ends. To convey the

message in a readable fashion our experience is abbreviated and presented

more linearly than it actually happened. All of the people in the

story are real people. In some cases real names have been used to

recognize and acknowledge their contribution. In other cases names

have been changed to protect identities.

All of the information presented in this book is actual data. If the

information is discoverable through publicly available sources, then the

actual numbers are presented unchanged. However, if the actual numbers

are not generally available through public means, then the numbers

have been modified to convey the message without providing

actual values to maintain confidentiality.

Overview

The story has three parts: The current state of product development,

the learning environment and organizational learning fundamentals,

and the principles of knowledge-based product development. The

book is structured to first allow you to see product development as an

integrated system and recognize that improvement of the system is

only achieved through a learning journey, then provide you with means

to take the journey for yourself.

In Chapter 1 the story begins with the current state of product

development, based upon firsthand experience working at a car company

I’ve chosen to call ‘‘Roaring Motors.’’ It is the way I was taught

to develop products. It is the way almost everyone I know learned to

develop products. It is what I see at nearly every company I visit. The

current state of product development lays the foundation for frustration,

and subsequent motivation to find a way to work smarter rather

than harder.

Chapters 2 through 7 describe the learning environment that was

present at Harley-Davidson and which allowed this journey of discovery.

These chapters present principles of organizational learning neces-

sary to improve product development. They describe how system

dynamics and organizational learning enable continuous improvement

in product development. The foundational elements for effective product

development necessary to build a knowledge-based development

system are also described in these chapters.

Chapters 8 through 16 describe the learning and discovery journey

in the application of lean principles, which resulted in knowledge-based

product development. These chapters describe the principles necessary

to make product development effective and the improvement outcome

you should expect.

The Importance of Product Development

Product development is the lifeblood of our companies and it fuels the

economy. Product development is the road that innovation travels on

the way to market. It is the key which unlocks dreams and the spark

which ignites the future. A recent survey by the Product Development

Management Association (PDMA) identified that the top performing

quartile of companies in their study derive nearly 48 percent of their

sales revenue from new products and nearly half of the company’s

profits from new products (products in the market five years or less).2

As the effective life span of products and services in today’s market

decreases, it drives the need for shorter product lifecycles. In some

cases the development time for new products exceeds the life expectancy

of the product in the market. The innovation rate necessary for

a company to be successful is rapidly accelerating. The driver for business

success is evermore becoming a company’s ability to innovate.

The Boston Consulting Group (BCG) conducts a global survey of

senior business leaders annually to identify the strategic direction of

firms. The results reinforce the importance of innovation; recent findings

from these surveys indicate that innovation is consistently a top

strategic priority. In 2007 the BCG survey polled 2,500 senior executives

from fifty-eight countries across all industries and found that 66

percent of the companies identified innovation as one of their top three

strategic initiatives. The study also determined that over 50 percent of

the senior executives polled believed that their company did not innovate

well in spite of this strategic focus. Most of the respondents indicated

that their company did not receive the return on investment of

innovation they expected. A similar study by the Economist Intelligence

Unit sought to understand the connection between innovation

and company success.3 In this study, 87 percent of the senior executives

polled identified innovation as either important or critically important

to the success of their company. The study identified that the beneficial

impact of innovation efforts goes far beyond corporate performance

and actually drives the national economy. The development of

new products and services is increasingly being identified as the engine

for growth and prosperity.

Former Commerce Secretary Carlos Gutierrez has said, ‘‘Innovation

is a driver of our economy.’’4 The role that innovation plays in the

economy is so important that the United States Commerce Department

has made the creation of a universal system of metrics to evaluate

the impact of innovation on the economy their top priority. The importance

of innovation is echoed in a recent Council on Competitiveness

report, which identified that as manufacturing capacity becomes

globally available at low cost, the competitive value of manufacturing

declines.5 This global competitiveness study emphasizes that innovation

is now the primary source of value for United States companies

and American workers. The president of the council, Debora Wince-

Smith summarized the report by saying, ‘‘The only driver for productivity

growth for the U.S. is our innovation capacity.’’

The need for innovation to drive economic growth goes well beyond

the United States or the primary developed nations. China and

India have recognized the importance of innovation and are beginning

to break out of their position as members of the underdeveloped world

through investment in knowledge creation and innovation. These

countries are embracing a culture of new product development by establishing

favorable laws and regulations promoting learning and product

development. China has recently become the second largest

investor in R&D spending, surpassing even Japan. Only the United

States continues to outspend the rest of the world as a single nation.6

According to Dirk Pilat, head of the Organization for Economic

Co-operation and Development’s (OECD) Science and Technology

Policy division, ‘‘The rapid rise of China in both money spent and

researchers employed is stunning. To keep up, OECD countries need

to make their research and innovation systems more efficient and find

new ways to stimulate innovation in today’s increasingly competitive

global economy.’’7

Innovation has become the driver for productivity and growth for

every developed nation, as well as for every company that is attempting

to grow its business and control its own destiny. Whether country or

company, innovation is the differentiator for success. Those who do

not innovate will fall behind and will have their fate determined by

those who do. This book shares lessons and principles to allow your

organization to bring more innovation to market faster with fewer

problems through a more effective and efficient product development

system.

For more information about the principles enunciated in this book,

see www.theleanmachine.org.