Labor value theory: stumbling block for lean processes, protection for the planet

The definitions of value creation and waste in the lean context originally come from the production environment. Therefore, the first thing that was meant was objects from which value should be “created”. The employees needed a selection criterion that they could use to decide which parts of the process there should be less of in the future and what was considered valuable and should be kept. It is still used today to improve processes – business and economic perspectives played no role in the definition of the criterion. According to the labor theory of value, value creation only took place in production.

All improvements started with this possibility of classifying processes as “good” and “bad”. The process downstream in the value stream determined which properties the object should have. This view was later expanded and until today, there are discussions about whether work on immaterial goods can also be described as value creation. New consulting approaches have developed from these considerations. Lean administration – initially called lean office – focused on streamlining the indirect areas of a company.

But what happens if we use the term value creation too carelessly is what I would like to explain with the 4-field table below. Each quadrant combines the scope of the definition and the perspective from which we define what value creation should be. What results can we now see and how should we classify them?

The labor theory of value can be seen in the upper left field. All activities on the object that are not scrap or rework increase the value of the product. The 7 types of waste – especially transport – must be reduced to a minimum. This should lead to condensed and interlinked value streams, the prerequisite for synchronous production.

The bottom left field shows the first extension of the definition. After the “Lean Production” initiatives showed initial success, it quickly became clear that the activities could not be limited to production. In their book “Lean Thinking: Banish Waste and Create Wealth in Your Corporation”, the two bestselling authors J. P. Womack and D. T. Jones explained that a lean company could only be created if waste was reduced in all areas of the company.

Managers were therefore faced with the question: How do we translate the 7 types of waste for the indirect areas? Consulting approaches such as initially “Lean Office” took up this challenge and defined indirect waste. This is how the Lean Administration methodology was born

The concept of value creation was also transferred. It became obvious which path change processes take in the indirect areas when processes are all too easily described as value-creating. Should there be value creation in the indirect area at all? Readers would then be required to define indirect value creation. This path is usually taken for political reasons. Those affected do not like to hear their processes described as waste and confuse value creation with appreciation. Nobody questions the necessity of indirect processes – they are necessary – but starting a debate about values ultimately reduces the potential. There is a risk that indirect processes will evade the claim for improvement because they have been classified as “good” and necessary for the customer.

The current discussions about the deindustrialization of Germany and the path to a service society reinforce the arguments of the proponents of indirect value creation. The path to a service society is inevitable, and value creation would be created there, too. But are these arguments useful? Does the goal of a service society legitimize the definition of indirect value creation?

It is true that many countries are losing industry and are still booming. But it is also true that Germany cannot do without its industry. Proof of this statement is that around half of all hidden champions – companies with a turnover of less than five billion euros and a top three position in their industry worldwide – come from Germany. Many companies in the important service sector also only survive thanks to these companies.2 The question of whether it makes sense for an industrial location to move towards a “service society” “If Germany says goodbye to its industry, it will lose perhaps its greatest competitive advantage.” CLEMENS FÜST President of the Ifo-Institute VALUE CREATION 3 2 OPERATIONAL EXCELLENCE LISTEN IN! Podcast with Frank Krause (in German language) at: www.staufen.ag/podcast is answered with a clear No, because our competitive advantage is the ability to organize complex international value flows. We have no natural resources and cannot live off tourism. So we need to organize lean industrial operations. The focus here is on improving the production of material goods. Any indirect service for the object is therefore hidden waste and should be able to be questioned. The customer pays for the object – not for the processes that supported its production. They usually do not see these and cannot judge them. I will give an answer specifically for transport below. But first, let‘s go back to the graphic.

The upper right panel shows the inconsistency of definitions from the customer‘s perspective. He agrees with the definitions of hidden waste in the “components world”, while in the “services world”, some definitions suddenly no longer apply.

This gets clear in the bottom right field. Here, we expand the concept of value creation to include the scope of the service after we have already defined value creation in the indirect areas. The number of processes that are protected from reduction by the value creation class has increased a second time. But is that a good idea? This scope of definition makes it possible to classify the processes previously classified as hidden waste as value-creating, since the customer is happy to pay for them or wants to pay for them. However, the customer‘s wishes/well-being can conflict with the common good. This is noticeable in global transport. I would like to remind you of the negative consequences of hyperglobalization. We are currently experiencing not only the economic and geopolitical, but also the ecological disadvantages when “the customer” causes global transport. I have already spoken about this in my podcast “Resilience in connection with future supply chains”. Feel free to listen to it again.

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