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Michael Balle

Michael Ballé: the Toyota Way has worked as it’s supposed to, helping the company to face its challenges

By Michael Balle, co-author of The Gold Mine and The Lean Manager - Last updated: Sunday, February 27, 2011 - Save & Share - Leave a comment

I had the great fortune and privilege of knowing and corresponding with Robert King Merton before he passed away, one of the great thinkers of American sociology, and he often steered me to look at how people defined any given situation. His general point was that the way people frame reality has real effects. Although no Toyota car has ever been found accelerating on its own, when the US transportation secretary tells the public to stop driving their Toyotas until they’re safe, regardless of how crazy that statement sounds in total absence of evidence, it has real effects: it creates profound and lasting damage to the brand.

Indeed, the perfect PR storm Toyota endured is a remarkable illustration of Merton’s concept that expectations drive reactions. For instance, after a decade of one corporate scandal after another, every one expected Toyota to be just another corrupt large corporation and to lie to its customers. As a non-US observer, I expected something different: I doubted that Toyota could get away with driving GM to its knees into chapter eleven without finally falling victim to American gotcha politics.

In the lean world, the crisis demonstrated that we’re just as driven by our expectations as every one else. I remember a conversation with Jim Womack about ten years ago in Turkey where we wondered when (not if) Toyota would experience “reversal to the mean” and become just another car company. When the safety crisis hit, many lean experts played out this scenario, some embarrassingly quickly considering they’d been making a living out of toting Toyota’s uniqueness. In the worst of the storm, only Jeff held steadfastly to the facts he had and kept true, under sometimes violent attack, to his own analysis of Toyota: there was nothing particularly wrong beyond recovering from the Great recession.

Interestingly, expectations played out within Toyota as well. Akio Toyoda himself made a reference to Jim Collins latest book about hubris, How the Mighty Fall, saying the company was “grasping for salvation.” Although surprising to hear Toyota’s president actually come up with that, the sentiment of paranoia is one well-known to Toyota watchers and the “we’re growing too fast and losing the essentials” idea has been constantly expressed by the people I know at Toyota over the past ten years. Probably always has, since in the nineties some of the senseis were already berating Toyota newer managers for their lack of hard work and discipline in solving problems.

What does Jim Collins tell us that could resonate with Toyota’s leadership? When the arrogance born of success sets in, companies don’t grow complacent, they overreach – and then denial sets in. This definitely sounds like a familiar pattern. In our particular case, though, all reports I’ve heard make me think that Toyota has been questioning whether it was overreaching internally for the past ten years, and certainly vigorously since 2004. As with many surprising things with Toyota, difficult debates don’t get solved. They’re kept alive and discussed until new data or events tip the scale this way or that.

Now that Toyota has been exonerated, the common opinion is that this has been a PR disaster, since it’s not a technical disaster, and that Toyota responded poorly to its image being attacked in the US (the safety crisis had much smaller impact across the rest of the world). But if that is so, what about all the baying about Toyota having lost it’s way and no longer being, well, Toyota? Just a huge PR goof?

The point I’m laboring here is that it is very hard to draw solid conclusions from a shellacking – the court of public opinion, particularly in the US where it has freedom of expression (a good thing) is both fickle and brutal, and will move on from one burning to another. On the plus side, many of those who get lynched do deserve it, so it’s just bad luck for those who didn’t.

What lessons for lean then? First, let’s look at Toyota’s response to the crisis. Sure, they were slow to understand what was happening because there was no technical issue, and just as the Lexus Japanese engineers were originally slow to understand that country club wealthy Californians valued status over engineering, Toyota’s Japanese leadership was slow to understand that public opinion in the US moved largely independently of facts because the media look for a good story, not good reporting.

But when they grasped the cope of the problem, their response confused many people. In terms of defining reality, one thing they did grasp is that their fundamental promise of “peace of mind” was under attack, and that their main product strategy is to establish their brand as a standard for any family where one driver owns a Toyota (which is why they created Lexus and Scion, to open their reach at the extremes of the scope). All communication now turned to Toyota owners, not the market of potential Toyota buyers, which came across as weird and clumsy to commentators: Toyota was not talking to them. I suspect that the continuous wave of recalls are about returning to core “stop the line” principles, and convincing Toyota drivers that Toyota is still Toyota. This has brought about a strange situation where Toyota owners can see the continuing recalls as a proof of attention to quality (and hence recapture peace of mind) whereas the rest of the public construes this as ongoing problems with Toyota cars.

Whether the gamble pays off in the end or not, the company is 1) clearer than most on its promise to its customers (our products will enable you to drive without worrying about your car) and 2) true to its principles in its execution (let’s do the recalls regardless of the fact that it will make us look bad). Rightly or wrongly, this, in itself, is quite impressive.

But what about the fundamental problems? What about “Toyota has lost its way”? What about Toyota being on stage four of the Collins failure curve? I’ll go out on a limb there because I know no more of any strategic discussions within Toyota that what can be read in the press, but the company is facing difficult challenges – no one would expect them not to with the incredible growth they have sustained over the years. As far as I can tell, we can see three huge issues:

Self-reliance: this has been a major corporate initiative since the turn of the century. Toyota plants are felt to be too dependent on Japanese coordinators and Japanese top decision making which 1) strains the resource and 2) slows the decision process as happened during the early days of the crisis. However, as plants try to wean themselves from true bred Japanese experienced workers, they also hire other people with automotive experience, and the wrong attitude. Some structuring tools like andon, for instance, need a lot of right-minded experience to use right, and are very dependent on attitude to work properly. Can Toyota teach the right attitude to its middle-managers fast enough to keep is magic?

Suppliers: increasingly, I’ve come to realize the importance of Toyota’s unique approach to supplier relationship in their cost management strategy. Sixty to seventy percents of costs are linked to bought out parts, and Toyota’s unique supplier management and development has been, I now believe, a very undervalued part of the lean model. Reports I’ve had across the world over the past five to six years are of strain in supplier relationships as Toyota’s purchasing has become increasingly demanding (ostensibly to respond to the “low cost country” challenge) and more like just another car company. I’ve witnessed situations where, at the same supplier, Toyota’s purchasing people and lean experts were giving opposite recommendations – much to the confusion of the supplier. Can Toyota generalize its unique supplier management system outside Japan with a global geography?

Engineering: Toyota has been driving cost reduction at breakneck pace in engineering with two consecutive value engineering projects at the same time it was releasing models at a shorter takt until the great recession hit. This means more and younger chief engineers with less experience. This also means greater reliance on non-Toyota temporary help in engineering. Toyota’s current head of engineering has mentioned longer developments for new models, and returning to the one/five ratio of team leader to engineers in engineering. Can Toyota’s engineering adapt to global markets and more self-reliance?

Out of this noodle bowl of events, facts, suppositions, ideas, what can we possibly conclude? Personally, I believe we’ve been privileged in watching the Toyota Way working exactly as it’s supposed to. The “problems first” spirit is still alive and well in Toyota, from the president’s comments to reactions on the floor, and as we all know, facing problems doesn’t make them disappear in the instant: it’s a long hard slog. But Toyota has expressed its challenges, and has been working at solving them. Furthermore, the PR crisis has not distracted it from its core principles and has been, if anything, an opportunity to demonstrate how these principles play out under fire, as Jeff would say.

So, number one, TPS still works as a problem-solving force, as a “go back to standard” drive, which is how I interpret the ongoing recalls and the engineering actions. Veterans always feel it was better before, sure, but there is no evidence to say that the company is working less hard at solving its problems: the problems have changed, and so have the people, but the problem-solving element remains strong.

Number two, is Toyota still improving, and not just grappling to solve its problems? Reports on Toyota’s new Ohira plant are inspiring. It seems that Toyota has come to the conclusion it’s going to become increasingly harder to squeeze drops of water from the parts supply dry towel (which is a good sign that it might have gone too far in squeezing suppliers) and has now turned its attention to the capital expenditure cost weighing on each car built. Ohira is supposed to have no ceiling-supported conveyor, no installations in the ground and to reduce the cost of the plant by 40% – imagine that! Now, that is a plant I’d love to see.

I believe the basic intuition of lean is understanding the overcost we impose on the product by our operational decisions. Capital expenditure and how we use capital is a large part of this, as is purchasing and labor. Toyota’s pushing the boundaries again on the plant investment front is a sure sign that TPS is alive and well.

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