ABSTRACT
Much of traditional thinking about efficiency is basically the logic of economies of scale, which is a concept that originated with Adam Smith, the father of modern economics, in the early days of the Industrial Revolution. Understanding the two types of efficiency respectively, “resource efficiency” and “flow efficiency" is a useful way to understand how Lean companies differ from traditionally managed companies. Modig and Ahlstrom cite the example of a luxury hotel as a type of business that might work well by having high flow efficiency and relatively low resource efficiency. Increased flow efficiency relieves employees of many of the stresses and frustrations that come with working in a traditionally managed, frantically busy workplace. So Lean leaders create a common goal around increasing flow efficiency, but it is employees and frontline managers who must do most of the hard work of establishing flow.
