Henry Ford, founder of the Ford Motor Company, was a captain of industry who revolutionized production. He also was one of the greatest influencers of the processes we call lean and kanban today. I believe his ideas about process improvement made him a pioneer for agile software development.
The Theory of Constraints
The theory of constraints is an approach for identifying the most important limiting factor, or constraint, that stands in the way of achieving a goal. You can then improve on that constraint until it is no longer the limiting factor.
Ford and his team created a flow-based production line and focused on removing constraints using a continuous improvement process. He was always pushing for the next improvement, constantly asking, “What's next?” Over a five-year period, Ford worked to identify every bottleneck in his production system. His obsession for improving flow was relentless.
This focus on flow and continuous improvement led to some stunning results:
- Time to build a Model T car went from 12.5 hours to just 93 minutes, cutting 11 hours of waste out of an already profitable system
- In 1914 Ford produced more cars than everyone else—not just more cars than his competitors, but more cars than all three hundred of his competitors in the world, combined
- Ford employed 13,000 people to his competitors combined 66,000 people, and the productivity of his employees was five times the industry average
But Ford was not understood by his peers, whose focus was on local optimization of processes instead of systems thinking and overall throughput. Even his own sales team couldn't understand his desire to simplify the design or reduce the price. They wanted options and variety; Ford wanted a car that was constructed of the best materials, had an efficient design, and was affordable to everyone.
One of the biggest issues Ford faced was with his workforce. Factory workers were unreliable, and his new method of simple, repetitive tasks and his desire for rapid growth meant he had high turnover.
His solution was to double the average pay of factory workers. Ford offered five dollars per day, reduced the workday to eight hours and the working week to five days, and offered a form of tenure to employees.
Ford’s decision was national news. But much of the press despised him for helping the common man, seeing it as a social policy rather than a sound business decision. They believed he was hurting the industry, with one major paper calling him a “class traitor” and commenting that paying factory workers that much “was a blunder, if not a crime ... against organized society.” That is pretty harsh for a man just wanting to pay people a little more so they could be relied on to build quality cars.
Ford had the last laugh, though, saying it was the best cost-saving decision he ever made. With a massive reduction in turnover, the cost of training plummeted and productivity soared. Profits doubled just two years after the policy was introduced.
In 1914 Ford took ideas a step further. He restricted the color options for his cars to only black. It remained that way for twelve years before expanding to fourteen color options shortly before the Model T was replaced with the Model A.
I have read that the decision to have black as the only color option was a cost-saving exercise, with a suggestion that the unit cost of black paint was less than other colors, but I have been unable to validate that claim and, frankly, I find that hard to accept. Unit cost considerations did not play a part in any of Ford’s other major decisions, the wage increase being a clear example of how systems flow was far more important to him than unit cost. Cost savings were a consideration at a system level only, and certainly not a factor if it impacted flow.
From what I can deduce from applying lean thinking myself, Ford would have switched to only black even if the unit cost had been significantly higher. I think he chose it because black paint had two distinct qualities that would have appealed to Ford: it dried to the touch very quickly, and it baked hard in two days, compared to two weeks for the other colors. For Ford, being able to ship cars from his factory twelve days sooner was massive—it enabled him to reduce his inventory of finished goods by 85 percent.
That decision alone was an instant injection of more than $4 million into his business (more than $100 million in 2017). If he had offered other colors, by 1923 the inventory cost to him would have been more than $30 million ($750 million in 2017), not even including the space needed to store eighty thousand additional vehicles while their paint dried.
Few people understood the ramifications of Ford’s decision—in fact, many opposed it or ridiculed it, and that’s still true even today.
Ford showed the correlation between effort and productivity is a myth. It’s about working smarter, not harder. He passed his efficiencies on to the customer, and as his productivity went up, the price of the Model T came down, from $850 (approx. $22,000 in current terms) to just $260 in 1925, which is a mere $3,600 in 2017 terms.
All this demonstrates that Ford had a good grasp of systems thinking—understanding a system’s interdependencies and how to optimize processes at the system level.
Ford seemed to understand the theory of constraints and systems thinking long before either was recognized as a discipline. He changed not just his own organization, but the entire industry and likely even the economy of a country. He balanced profitability with altruism, although some of his values and politics were questionable and some of the rules he imposed on his workers would be unthinkable today.
But to me, he is the pioneer of lean, kanban, the theory of constraints, and systems thinking, and everything in the world of agile since then seems to have been built on his shoulders.