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Jeff Liker

Jeff Liker: Outsiders can be insiders if they commit to intense learning partnerships

By Jeff Liker, - Last updated: Monday, November 11, 2013 - Save & Share - Leave a comment

Automotive companies differ in how they define their core competencies, what they outsource, and their philosophy of how to deal with inhouse versus outsourced products and services. For example, Toyota makes their own plastic bumpers, makes a substantial number of their own seats, and makes some key components of hybrids such as batteries and switching circuits. As Steve Spear points out the structure of what you make in-house versus outside is less important then how you manage processes within specific units that do specialized work and across these specialty units. Many organizations have terrible trouble with cross-functional teamwork even when the “teams” are all inside employees of the firm. The degree to which organizations improve processes varies greatly across organizations, again regardless of whether it is inside or outside. As a general rule the philosophy of the Toyota Way, Toyota is aiming for respect for people and continuous improvement. Respect for people applies to outside companies they partner with as well as internal team members. Continuous improvement applies to internal and outside companies and relationships across internal boundaries and boundaries with the outside. This means Toyota has to be very selective about hiring people, about selecting outside partners, about developing people inside the company and about developing outside partners. In The Toyota Way I have an example of a lawyer I interviewed in Phoenix (Phoenix “man of the year” at the time) who explained how becoming a lawyer for Toyota changed his life view, world view, and how he practices law. I hear this type of thing all the time. On the other hand Toyota will invest much more heavily in first-tier, major suppliers (seat systems, exhaust systems, brake systems, etc.) then in commodity suppliers (e.g., nuts and bolts).

The definition of core competencies that Toyota will do in-house changes over time. Also in The Toyota Way I have a chapter about the development of the first generation Prius and Toyota’s strategy was to define all the unique technologies of hybrids as core competencies that they wanted to keep in-house, thus they built plants to make circuits and batteries. They want to have the competency for all core and complex technologies of vehicles in-house but once they have this they are willing to outsource even core technologies, but only to very close partners like Denso and Aisin and some overseas firms they have close relationships with. Their selection processes for close partners is rigorous and requires an incredible commitment from the outside supplier often investing for 4-6 years before they recover their investment in working for Toyota. Those who do this understand that once they become a partner they have the opportunity to be a partner for life. They are “insiders” even though they are outside companies.

Unfortunately when I hear companies that develop a “new strategy” of shared services that they outsource it rarely has anything to do with excellence, adaptability, or learning as an organization. It is a short-term dollar and cents issue and a quick and dirty way to cut costs without needing to make the difficult investment in truly getting better at anything.

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