John Shook's Lean Management Column

“What’s your challenge?"

Toyota can’t exist -- Toyota can’t be Toyota -- without a challenge. That’s true for each individual or work group and for the company as a whole. Micro and macro. The first challenge the company faced was learning how to build cars. That challenge wasn’t really all that challenging. In it early days, led by Kiichiro Toyoda, Toyota successfully copied the Ford/GM model but did so no better than many others. The second challenge for the company, after surviving the war and immediate post-war period, was to chase its dream to “catch up with the Big Three”. This is the challenge that spurred Toyota, led by Eiji Toyoda, to separate itself from the field. The company’s success in this regard was already a fait accompli by the end of the 1970s, and by the mid to late 90s Toyota was the unquestionable industry leader. That’s when the malaise began to set in. That’s when some quite “non-Toyota” decisions and behavior began to manifest. Back to that later -- that gets into Toyota’s deeper challenge.

What about the immediate challenge, which is to respond to the current crisis that has befallen the entire global economy, hitting the auto industry especially hard? I have no doubt that Toyota will weather this storm and in fact come out the other end stronger than ever. That’s what’s always happened in the past. Toyota was a relative unknown amongst Japanese companies until the oil shock of 1973. When that storm passed, industry leaders and academics noticed that Toyota had somehow weathered the storm unscathed, and was curiously stronger while others were mired in red ink if not going under completely. The same thing happened a few years later when the second oil shock hit in 1979. Same thing a decade after that when endaka (the “strong yen”, when the yen to dollar exchange rate doubled in a matter of months) hit in 1988. Same thing a couple of years after that when the Japanese economic bubble burst, spiraling the country into a decade-long tail-spin. It was the same scenario in each case: the economy tanks, competitors lose money, Toyota outdistances them even further. When I joined Toyota, there still wasn’t that much separating them from Nissan. By the late 90s, Nissan was on the brink of bankruptcy while Toyota was setting record profits.

So, figure the same thing will happen this time around, too.

Toyota’s deeper crisis

But, the bigger and somewhat ironic problem for Toyota is that the need and opportunity to respond to these immediate problems will come as a welcome distraction from having to face its true, deeper, crisis. That crisis is no less profound than facing fundamental questions such as who are we? What are we here for? What is our purpose? In short, an identity crisis that will manifest itself in practical matters such as how do we develop our people, maintain our principles, and/or adapt them going forward?

So what makes me say Toyota has been in a malaise, or identity crisis?

When it became clearly evident in the mid to late 90s that the company had succeeded in attaining its goal (meeting its challenge) to “catch up with the Big Three”, there emerged the need for a new challenge. The only company that could challenge Toyota was Toyota. So it began to set new goals to challenge itself. One of those was to tackle the environmental challenge -- hence the hybrid. That challenge was a real one, and one that all auto companies still face and will face in the future.

But, the other challenge the company chose was arbitrary, and even a bit desperate. It decided to chase “big”. To grow, grow, grow. From challenging to be the best car company, it decided to be the biggest. The reason Toyota decided to be the biggest was simply because it needed the challenge. But, the challenge to be the biggest turned out to be a bigger and different kind of challenge than the company thought.

I recall in the very early 90s a fascinating argument between two Toyota production executives about the urgency of developing more talent to manage global factories according to TPS principles and practices. One executive (and I took his side in the debate) argued that we were sorely lacking and slow in developing talent, both Japanese and local, to manage Toyota’s global growing footprint of factories. The other executive argued that there wasn’t really such a need for so many globally adept managers because, after all, “we’re not going to be making new factories like rabbits…”

And so it was until ten years ago. The company still had only the three major factories the company had worked methodically to establish and place on a firm footing starting with NUMMI 25 years ago. Then, in the next ten year span, the company built two additional assembly plants, two powertrain facilities, announced another assembly plant, and contracted for capacity at another. Quality problems began to appear leading to headlines that Toyota’s reliability was no longer bullet proof. A dearth of qualified Japanese managers meant that more responsibility was given to local managers. But, a dearth of fully developed local managers meant the company had to scramble to quickly rotate and transfer its limited pool of qualified talent and hire others from the outside, even from (take a deep breath) the Detroit Three.

The interesting part of this story to me is that some decisions seemed to violate long-standing Toyota thinking. To give one example, Toyota has always stipulated flexible capacity and a specific characteristic of the company was that it would always try to build more than one product in each plant, usually more than one on each assembly line (the technical capability to produce more than one model on one line is not uniquely Toyota -- the determination to always hedge your bets is). This was one way to maintain maximize flexibility against changes in demand (we talked about other ways in column #6). If you try to capacitize a factory precisely at your predicted market size, you expose yourself to huge risks to changes in demand -- a special hazard in the auto industry where decisions to install capacity are made far in advance.

So, Toyota’s installation of capacity dedicated solely to big Tundra trucks in San Antonio was on top of capacity already in place in Indiana. What happens if there’s a downturn in demand for Tundra trucks? Well, now we know happens. Toyota had to scramble the same way Ford had to scramble when demand weakened for the Taurus when it had two factories dedicated to building Taurus. But, any capacity installation mistakes Toyota has made in recent years are, after all, just mistakes. And mistakes, or the company’s attitude towards them and ability to learn from them, distinguish Toyota from its competitors more than any other visible characteristic. (As we’ve discussed frequently in this space, all the way back to column # 1. I should note, too, that Toyota will often start a new facility with one product, then ramp up, build capability and add a second, then third product later, so we need to be careful not to magnify too much the magnitude of those particular mistakes. But, there are others.)

Toyota will recover from its recent missteps and these kinds of problems. Responding to problems, to crises, brings out the best in Toyota. In Japan, Toyota people are sometimes referred to as “problem-solving junkies”. Hah -- come to think of it, that one descriptor says much of what I was trying to say above.

But, focusing on solving immediate problems may very well distract the company from its deeper crisis. Toyota has no one to follow anymore -- the Detroit Three no longer provide a rabbit to chase. So, what is its new challenge, really? If Toyota’s mission or purpose is to survive, it will probably adapt to do so (it’ll figure out what to do with the excess capacity). But, an intense drive to improve, or “relentless pursuit of perfection” to quote the Lexus ads, requires something more tangible than that. What will drive its pursuit of decades more kaizen and kakushin (revolution)?

What will drive yours?

See you back here, first week of the New Year!

John
John Shook
Senior Advisor, Lean Enterprise Institute

A Lean Dream…

…wouldn’t it be great to see some lean Practical Problem Solving brought to the Detroit 3 “bailout” debate in Washington? Asking simply: What is the problem and how do all the “solutions” that are being bandied about match up?

Forgive me for quoting from my own book, but (page 32 of Managing to Learn) “First, what is a problem? Organizations spend enormous amounts of time and energy debating, exploring, and trying solutions -- yet, how often is it clearly asked and answered, ‘Just what problem is it that we are trying to solve?’”

Choose your favorite problem-solving scientist and somewhere in his or her writing you will find a quote something like, “a problem defined is a problem solved”. Dewey might have been the first -- I often quote Boss Kettering.

Now, I may get as angry with Rick Wagoner as much as the next guy for the many mistakes GM has made over the years as well as for failure to develop more effective long-term strategy and execution. But, is “he” (of course I don’t mean Mr. Wagoner really, we’ll just use him as the symbol for all that has gone wrong with Detroit management) the problem? Recognize that from a short-term perspective, the Detroit 3 do have -- agree with it or not -- an argument. That argument is that they need short-term cash -- cash that they can’t get through conventional means due to frozen financial markets -- because without it: (1) they can’t run their day-to-day business operations and (2 ) customers can’t buy cars. Those things combined with the precipitous fall in vehicle sales volumes was far more than their cash reserves could bear. Note that not only the Detroit 3 but every mainstream auto manufacturer is in dire straights. Toyota will be okay, proving its resilience as it has during every previous economic crisis: economic downturns, you know, are always our opportunity to distinguish real lean wheat from fake lean chaff. Globally, many of the auto companies may go under, each of them asking their respective governments for a “bailout” as they go down. It would be interesting if the U.S. turns be the only government that won’t offer major assistance.

That’s the Detroit 3 argument anyway. You decide for yourself whether or not you want to loan them money -- just weigh the risks. It’s just a business proposition -- do you think the value gained is worth the risk that you won’t get paid back? Once you decide, write your congressman. But, let’s at least recognize their argument.

But, good luck hearing that argument amidst the cacophony. Rather, the sight of the Detroit 3 CEOs, especially GM’s, sitting before them hat in hand (and with TV cameras) was just too good of a target for the lawmakers to pass up. Dogs to a bone (notice, by the way, how the most vociferous critics happen to be from states that have direct foreign auto investment?).

So, what problem is it they’re trying to solve?

The longer-term failure of the Detroit 3 to adapt to changing circumstances (high costs, poor products, wrong products, environmental indifference)?
If that’s the problem, the solution(s) will also be longer term (a $25 billion loan won’t go very far, won’t solve the underlying problems).

Excesses of Detroit 3 executives (corporate jets) and UAW members (job banks, restrictive practices, etc.)?
If that’s the problem, there must be a lot of companies in the same boat (yacht?).

The fact that credit is so tight the Detroit 3 can’t run their day-to-day business and consumers can’t buy cars?
If that’s the problem, wasn’t freeing up capital markets the purpose of the $700 billion Wall Street bailout??

The likelihood that -- whatever your personal view of the causes of the situation -- a $25 billion loan will be “cheaper” than the cost of Detroit 3 total failure, both short term (thousands of failed businesses, millions of unemployed workers, lost taxes for communities…) and long term (no national auto industry -- the industry that has proved in most countries to be the most powerful engine for economic growth)?
If that’s the problem, you can make a strong argument for bridge loans.

The fact that the Detroit 3 haven’t fully transformed themselves and adopted a new (lean) business model?
If that’s the problem, we need to ask why (maybe more than five times) that hasn’t happened.

Of course, the above “problems” interrelate. And they each have multiple causes. But, the cat-and-mouse sparring and scoring of points for viewers back home by politicians just adds confusion on top of bewilderment. Does anyone truly understand what happened on Wall Street? The answer to that question appears to be no, or certainly no one in Washington, but that didn’t stop them from throwing solutions at it. True, toss enough spaghetti and something may stick. But, if we’ve ever needed lean thinking, it’s now. Or if the Lean Community ever had an opportune time to share with others the power of lean thinking, that time is also now. Which relates to…

Last week’s column…

…received a lot of response, some of which you can see here, some of which came from other sources.

That column was written in response to a specific question that I often hear -- “Why hasn’t GM learned from Toyota?” That’s not exactly the same question as “Why is GM failing?” They are related questions, or questions with overlapping answers, but they are very different. I certainly was not intending for those 1,500 words to be the final word on what went wrong at GM.

The reasons for GM being in its current boat are many, complex, and intertwined. There are some good articles in journals right now (Fortune’s cover story by Alex Taylor for one) and no doubt MANY more on the way over the coming months. After all, everybody has their take on the car industry -- we all drive one, and most of us either love them or hate them. My own love affair with cars goes back to auto mechanic school in the 1960s (not really much else to do growing up in the small-town south). In addition to all the recent articles, books have been written about GM’s deep problems going back many years now. One of my early favorites was Brock Yates’ The Decline and Fall of the American Auto Industry. Many if not most if not all of Yates’ observations still hold true today and he wrote that book in, let’s see now, that would have been the same year I joined Toyota …1983!!

Ouch.

So, a lot of people in Detroit, including many smart folks inside GM, have known the company had serious -- life-threatening serious -- problems for a very long time. All this railing from Washington and elsewhere about Detroit managers simply being stupid misses the point and distracts from the deeper questions. If smart people saw what was going on, took action to try to change course (for example NUMMI, where I played a small role, and Saturn and many other attempts) yet couldn’t, what does that say about transformation of large organizations?

Before you answer, note this: that failure to transform isn’t just because no one in Detroit read John Kotter’s eight steps to successful change or Peter Senge’s description of the learning organization. Or whoever your favorite is.

So what…

…I won’t claim to know all the answers, or even all the questions. And we will continue to explore both of those in this space. But, while I don’t know the questions or answers today, one thing I DO know is that both will emerge ONLY from further effort to clarify the problem(s) and understand the reasons behind them -- the “why?”

See you next week.

John Shook
Senior Advisor, Lean Enterprise Institute

Survive to Make Money or Make Money to Survive?

With GM’s demise becoming more real every day, many people have been asking me, “Why didn’t GM learn from Toyota when they had the perfect chance?” After all, NUMMI was an open door for GM, since Toyota provided GM full access to pretty much everything it does. GM has had the single best access, by far, of any competitor to learn from Toyota. I happened to be there at NUMMI in the beginning.

So, let’s go back, briefly, to that opportunity for GM to adopt the best lean practices. The first GM managers, a group of 10 mid-level executives led by Ed Muirhead, visited Toyota City to begin their learning process in February 1984. They were followed quickly by three GM production managers assigned to actually manage different production areas at NUMMI, Larry Spiegle in Stamping, Ken Souza in Paint, and Doug Katko in Quality Control (other areas were run by a combination of Toyota and direct NUMMI hires). From there dozens, hundreds, eventually thousands of GM folks from all levels and disciplines came to NUMMI, saw what they could see, and went back home.

GM had a lot to gain from NUMMI: a good small car (the Chevy Nova-badged Corolla), the chance to put an idle plant and workforce back to work, and an up-close gemba opportunity to learn TPS. Part of my very job was to help teach TPS to GM people. And so it went -- Toyota running NUMMI operations, GM selling Novas while dispatching people to NUMMI to learn.

I left Toyota in 1994. At that time, at least, GM still didn’t know how to make a small car profitably and still didn’t understand TPS. And here we are today. So the question remains: why not?

Some people say that Toyota didn’t actually open the door all the way. That they hid the best stuff. I can tell you that’s not true.

Others (including many people inside GM) say that the individuals who went to NUMMI to learn simply didn’t learn. They were looking at the wrong things. They just “didn’t get it”. This is the most common view – they just didn’t get it.

Secrets of Successful Change
But, I have a different view. I think many of the GM people who spent time learning at NUMMI did in fact learn a lot -- they got it, all right. But, “getting it” and knowing what to do with it back at GM to turn that monster around was a vastly different story. So, why didn’t GM learn? Or why didn’t they change based on what they learned about lean from NUMMI? I have a three-part answer.

First, actually, GM has learned. Or learned a lot, anyway. Sure, maybe GM is still no Toyota, but who is (is your company)? GM has done more to learn and to change themselves than most people will ever recognize.

But, it took them a very long time to change as much as they have. Perhaps that goes with the territory of being the world’s largest and most successful company for over half a century.

That’s actually the second part of my answer: the fact is that it takes far longer than we like to think to effect major change in organizations that are so large, with such entrenched cultures and patterns of operating and behaving. It may very well be that there is more for us to learn from GM than from Toyota -- what went right but also what went wrong, what doesn’t work. And why.

The third part of my answer is that while I argue that GM people have learned and changed a lot, it’s unclear how deeply the company has really learned, or changed as a company. Many of the tools and systems are in place. By all reports, GM’s newest plants are world class -- right up there with Toyota and the rest -- in both quality and productivity. However, the real secrets to Toyota’s success aren’t to be found in successful implementation of tools and techniques, systems or even “principles”. It really gets into basic thinking, the thinking each individual brings to each task, each team to each challenge, the organization to the achievement of its aims.

And what ARE those aims? Attainment of financial targets? That’s not the case with Toyota.

The Real Aim
“But,” you may say, “Toyota clearly wants to make money.” Yes, absolutely Toyota wants to make money as much as the next company, and they do it extremely well. However, the company’s real aim is something much deeper, and is the thing that has driven the company to be so successful for so long: the will to survive. Everything else -- tools, systems, even principles -- follows from that. A highly developed instinct for survival will take you a long, long way.

“But,” you may say, “the Detroit 3 also want to survive” -- that’s the whole reason they went to Washington. In fact, some argue that they’re trying to cling to life longer than they should, beyond their usefulness. I won’t even disagree with that point, but, there’s a difference.

Yes, GM wants to survive -- hence the humbling appearances on Capitol Hill by Wagoner and the two other Detroit CEOs. Yet had GM been seeking long-term survival a la Toyota, it would have made different decisions all along. GM wants to survive, all right, it wants to survive so it can continue to make money. Toyota on the other hand, wants to make money to survive.

Think about that: Toyota makes money to survive; the Detroit 3 exist (survive) to make money. Those contrasting senses of purpose will take you down very different paths.

If you aim for survival, your modus operandi becomes adaptability. How has Toyota pursued or demonstrated adaptability? When I first got a handle on how Toyota built flexibility into its operating (production) system design, I didn’t realize how unique it was, but could immediately recognize its elegance, whole-ness, and power.

The auto industry is inherently inflexible. Producing a car requires huge investment in massive infrastructure that takes years to put in place. It takes about four years to bring a new car to market (yes, Toyota and some others have reduced the actual product development time line to well under four years, but the basic rhythm of the industry and the standard full product cycle is still four years). That means four years in advance, you have to predict or put in the capability to provide what a customer will want four years later. That’s risky business.

Here are some ways Toyota builds in flexibility to mitigate that risk and maintain flexibility to adapt to changing circumstances. Toyota will:

Design products through a set-based (as opposed to point-based) process that enables making better decisions later.
Install capacity in smaller increments and steadily increase that capacity as needed in smaller increments (just-in-time capacity).
Mix capacity together -- build multiple products in each factory, more than one product on each line (so they can mix and match capacity to meet changes in demand, enable each machine to changeover quickly and to easily produce a variety of parts.
Set the operating plan at two shifts per day with a gap in between shifts to enable day-to-day adaptability.
Build a certain level of overtime expectation in the initial operation plan for new capacity -- when (if) demand falls, it is then easy to just cut out the overtime.
If demand falls more, you can reduce the takt time. And then increase it again and you can do that from month to month.
Set (at the Toyota plant in Japan when I was there) the plan for production volumes (takt time) in the assembly plants (which control the rhythm of the entire value chain) only a week before the start of the month, revising those volumes every ten days throughout the month, yet set the actual production sequence only hours before the start of each production day.
Order parts replenishment at the last possible moment at the point of use when the worker actually needs them (kanban).
Hire employees carefully, thinking not only about how many you need to meet current demand but how many experienced employees you will need years down the road.
Use “temporary employees” to judiciously mediate uncertainty with short and long term employment needs.
Develop those employees to work flexibly, with multiple skills and ability to do various jobs; transfer workers as needs change.
Develop those workers to redesign their own work (standardized work with kaizen) to meet changing conditions -- 2,000 workers equal the job redesign capability of 2,000 industrial engineers.

Different Purpose
There is more, but you get the point. Note that every single one of the above methods is “inefficient” on the surface. Note also that conventional management thinking leads to the exact opposite conclusion on each and every one of them. That’s because they are manifestations of a business model that embodies the effective shift from command and control (tell people what to do, removed from the gemba, and seek compliance) to the directed engagement of each individual pursuing answers to questions that they own.

Taken together, that all represents the difference in developing the organizational capabilities that enable dynamic adaptation to changes in the environment. And that all stems from a different sense of purpose -- the difference between surviving to make money and making money to survive.

So, if we borrow LEI’s “Purpose, Process and People” framework for understanding organizations, you could say that GM learned -- contrary to popular opinion -- quite a lot from Toyota about process, never really got very far at all into the people part (maybe a topic for another day) and, most importantly, all along its very purpose was utterly different. And, it just may be that purpose isn’t really something you “learn”.

See you next week.

John Shook
Senior Advisor, Lean Enterprise Institute