Column Archive: February 2010

Just a month remains until NUMMI plans to close its doors for the final time on March 31. But, during Toyota's difficult congressional hearings this week, California congressman Jerry McNerney made a pitch for Toyota to keep NUMMI open. Who knows - anything is possible.

As you regular readers of this column know, my introduction to lean production was working for Toyota to help launch NUMMI over 25 years ago. Here are several previous columns that have shared my experience.

I'm very happy to report that I was able to collaborate with the editors at Sloan Management Review to adapt this material into a great new article titled "How to Change a Culture: Lessons from NUMMI," which appears in the just published Winter issue. You can click here for a pdf of this article.

Alternatively, you can access it through the on-line version of the Sloan Management Review at the following link (though the printed article does contain different photos and is worth getting!):
http://sloanreview.mit.edu/the-magazine/articles/2010/winter/51211/how-to-change-a-culture-lessons-from-nummi/

I encourage you to visit the Sloan site (registration is free on the site) and check out the entire issue. In addition to my NUMMI article, there are articles on supply chain, pricing, and an interesting article on managing star employees using the Boston Celtics as an example. There is also a nice interview with MIT Prof. Charles Fine on supply chain strategy.

I'd also like to introduce you to a couple of insightful perspectives on NUMMI that have appeared recently. PBS NewsHour with Jim Lehrer aired a great piece on NUMMI, showing excellent footage of the plant, numerous interviews with NUMMI workers and featuring an interview with Prof. Robert Cole of Berkeley (who I have previously introduced to you here).

http://www.pbs.org/newshour/bb/transportation/jan-june10/nummi_02-09.html

Another wise perspective can be found in a recent article by my co-author of Kaizen Express, Ms. Toshiko Narusawa. In "Arigatou NUMMI," published this month in the Japanese journal "Factory Management" ("Kojo Kanri"), Ms. Narusawa places the importance of NUMMI in historical context. For those of you who speak Japanese:

http://pub.nikkan.co.jp/mgz/kokan/zkok10020-114.pdf

She writes that NUMMI marked the beginning of the concerted expansion of TPS outside of Japan, even outside Toyota City. Prior to NUMMI, TPS had been "discovered" by a few non-Japanese, a few Americans (for example, Len Ricard of GM had discovered TPS through his benchmarking of Isuzu, which GM had purchased), the French (Freddie Balle, for one!), Brazilians (with direct guidance from Taiichi Ohno!), and no doubt others, but at that time understanding was rudimentary and implementation nascent. In 1984, the combined Japanese share of the U.S. auto market was a little over 18%. Twenty-five years later, Toyota alone had a US market share of over 16%.

In Arigatou NUMMI, Narusawa expresses regret that NUMMI is closing, and gratitude for the role NUMMI played. "NUMMI showed that Toyota levels of quality could be attained through establishing a Toyota-style culture in only one year" she says. For those of us working to learn and implement TPS on the North American side of the pacific, we wouldn’t ordinarily stop to consider the impact NUMMI had on Japanese manufacturers' philosophies and approaches as they entered an intense period of transplanting their operations overseas.

Even here within North America, while it makes sense to focus on NUMMI's role for Toyota and GM, NUMMI's influence spread far beyond the doors of Toyota and GM. Yes, NUMMI provided Toyota with validation that its production system would work in North America.

Toyota got what it basically wanted from NUMMI very early on. Toyota's ongoing involvement as GM's joint-venture partner at NUMMI has been a matter of loyalty as much as anything. Under ordinary circumstances, Toyota would never close an operation it had invested in. Toyota has a track record of proving time and again the lengths to which it will go to preserve jobs well past the apparent business need for them.

But, now NUMMI closes. It's unfortunate, but perhaps natural. Everything comes to an end sometime. The numbers just don't add up right now.

Toyota is getting some heat (when it rains ...) for finally pulling the plug, but NUMMI was never supposed to last this long to begin with. The Chrysler-led anti-monopoly lawsuit ended up in a ruling that limited the life of the joint venture (JV) to 12 years, so NUMMI should have closed up shop in 1996 (a ruling that was amended ten years later to allow the JV to operate with no legal time limit).

From a learning perspective, I think it is surely unfortunate for GM that they pulled out of the venture last year, foretelling NUMMI's ultimate closure. Toyota is GM's second most important rival (Ford will always be its first rival - as GM is Ford's), and the joint venture gave GM great access to keep tabs on Toyota. Longer-term, I have to think GM will miss a lot from not having access to NUMMI. I think that matters much less to Toyota. Toyota got what they needed from the JV long ago.

The biggest loss from the closing of NUMMI is for neither GM nor Toyota, but for the greater North American manufacturing community. NUMMI proved that the best manufacturing practices in the world could work right here in North America with a union workforce. And more than just prove that it could work, it showed how it could work. I think we will be discovering more about the impact of NUMMI on North American manufacturing for years to come.

john

John Shook
Senior Advisor, Lean Enterprise Institute

1. PDF: How To Change a Culture, Sloan Management Review


2. http://sloanreview.mit.edu/the-magazine/articles/2010/winter/51211/how-to-change-a-culture-lessons-from-nummi/


3. http://www.pbs.org/newshour/bb/transportation/jan-june10/nummi_02-09.html


4. Arigatou NUMMI in "Kojo Kanri" (Factory Management): http://pub.nikkan.co.jp/mgz/kokan/zkok10020-114.pdf

Jeffrey Liker is professor of Industrial and Operations Engineering at the University of Michigan and author or co-author of numerous books about Toyota that must total more than a million copies in sales. I met Jeff in 1992 when I was still with Toyota, at that time as general manager of planning and administration for the Toyota Technical Center USA in Ann Arbor, just ten minutes from the university's engineering campus. John Campbell in the College of Literature, Science and the Arts; Brian Talbot of the College of Business Administration; and Jeff garnered federal funds to begin a research and education program they called the Japan Technology Management Program. A long association between that program and Toyota began at that time, and one of the most important results - certainly the most well-known and influential - of that association has been Jeff's research and writing.

Quite naturally, with the appearance of Toyota's various quality and recall problems, Jeff and I have been meeting in coffee shops in Ann Arbor to discuss (usually amiably) and debate (often vigorously) the dimensions of Toyota's crisis, whether it is really a crisis, and what it all might mean to the company and to the Toyota Way. We thought it would be interesting to capture some of our dialogue to share it with you here in this space. You’ve been hearing from me, so now you can hear a different view.

How Big A Crisis Does Toyota Face? And What Is The Real Problem?

Jeff Liker: There have been many attempts in the media to explain why Toyota failed in quality and safety. Let's start by assessing the very problem that Toyota has been chastised for publicly, because I do not believe that the problem has been accurately framed in public discussion. In fact, I think the evidence suggests Toyota quality and safety may have been at a peak just when the media claims they have failed.

During the recent recession there was a "time out" in Toyota. Plants were shut down to let inventory drain, or slowed down, so 30 to 40 percent of the workforce were not needed to build cars. Rather than lay off people Toyota used a "shared pain" approach to reduce bonuses and use rolling layoffs. Extra people were put to work vigorously learning all the TPS basics and solving problems every day. At TMMK in 2009, as a result of these efforts, defects found in final assembly inspection were reduced by more than 40 percent. In R&D Toyota also did not lay off anyone and there were many opportunities for kaizen. In 2009 Toyota won 10 JD Power initial quality awards, more than any other automaker.

John, in your last blog, you seem to charge that over the last decade the Toyota Way has languished, and that a crisis would force a revival. I have been watching the company struggle with problems year after year and feel a sense of delight - for Toyota has always maintained an undercurrent of improving the way it develops people, with plenty of wins along the way. It certainly has not been linear, and there are people who are much more developed than others, but the progress has been impressive.

Just shortly before the recalls were announced, and the media frenzy started, I was ready to declare that Toyota had conquered the challenge of the worst recession in post-war history by using it to as an opportunity to develop people and come out stronger. I suspect that had it not been for a highly visible accident in California where a police officer got a Lexus loaner with the wrong all-weather floor mat not clipped down, and subsequently killed himself and three family members, Toyota would have in fact thrived during the recession facing all companies. The highly spectacular videotaped incident in California led to the spotlight on Toyota and on the National Highway Transportation and Safety Administration (NHTSA). This caused NHTSA to pressure Toyota to recall vehicles that in the past would have led merely to a technical service bulletin. For example, Ford issued a technical service bulletin on the Ford Fusion Hybrid brakes, a very similar problem to what led to Toyota recalling all of the 2010 Prius in the world.

I see the recalls as a very, very, very poor indicator of fundamental problems. They are rare isolated engineering issues that in this case seem to have nothing to do with the health of TPS in plants or even product development. So far the more than 6 million vehicles recalled revealed three problems - an aftermarket floor mat that was misused by the public, a sticky pedal based on a composite material selected with a supplier about six years ago, and a software coding error made early in 2009. For a vehicle with about 3000 parts per model that is not a lot of errors in six years. I realize there are more but the customer complaints to NHTSA about safety issues for Toyota over the decade of 2000 to 2009, when they were supposedly in decline, were the fourth best out of twenty automakers (Edmunds.com). Complaints about Toyota made up 9% of the database while Toyota sold 13.5 percent of the cars. Where is the evidence for this free fall of quality and safety?

Am I saying that Toyota has no problems and this is all media hype? Not exactly. I think the reason Toyota is in the spotlight and we all feel obliged to admit that Toyota has lost their way and needs major surgery is because of media hype, plain and simple. I also think that Toyota always has and always will have problems. I do admit that my greatest concern in all of this was the evidence of slow responses to customer safety complaints and the notion of "hidden" recalls. Fundamental to the Toyota Way is surfacing problems and solving them and hiding problems has always been one of the most fundamental sins.

Toyota has a far, far greater problem solving capacity than any other company I know. By that I mean the depth and breadth of people capable of skillfully solving problems. That was true 30 years ago and it is true now - in my opinion based on my observations. Akio Toyoda absolutely needs to bring that problem solving capability to bear on quality and safety. As you have noted John, this is a golden opportunity to use a crisis to advance the company and Toyota should never waste a good crisis. They used the recession effectively and now right on its heels is perhaps an even more threatening crisis. Use it, exploit it, get better than the competition. If Toyota emerges a smaller, but stronger company I would certainly be a happy Toyota observer.

John Shook: I agree with that last point, Jeff. As urgent as the immediate crisis may feel to Toyota, the important thing is that the company uses this opportunity to learn and improve. That's true even if, when the dust settles, this entire fiasco is the biggest mountain ever made out of the smallest molehill. (A product recall this huge, and congressional hearings, with 20 sticky pedals at the heart of the matter? Does anyone think there aren't 20 Fords out there with sticky pedals?)

But, the situation must be taken seriously. People have died. The company faces critics from all sides as never before. And, the quality problems didn't start with the three that are dominating news; nor are Akio's public apologies, bowing, and promises unprecedented. Four years ago, then President Watanabe was bowing to the press in Japan, making promises that sounded very much the same, vowing to fix quality problems and get the company back on track. Over the past couple of years, even Consumer Reports has taken core Toyota products off its recommended buy lists. So, it's hard to shrug this off as three isolated incidents.

I expect Toyota will draw upon its deep problem-solving skills to deal with these specific problems. But it won't be easy, even for Toyota. Understanding the true cause in situations like this is extremely difficult. No one wants people to die, and everyone wants to know that lives are not being put at risk unnecessarily. But, along with the congressional hearings, lawsuits are coming out of the woodwork, settlement-seekers will start blaming Toyota for random accidents ("the pedal in my Camry got stuck, man ..."). Separating the actual facts from the noise here is going to be extraordinarily difficult. But, that's what happens when this happens. Toyota said they wanted to be Number One.

I haven't talked with anyone at Toyota about the specifics of the engineering problems involved here, but you have, Jeff. Certainly, the company needs to be on top of all of these things, but at the same time surely these are the kinds of things that could happen to any company, any complex engineered system. Murphy is indeed everywhere. The more complex the system, the more he is present.

There are however deeper charges against Toyota that must be taken seriously. Charges that the company is slow in responding to safety complaints. And more specific charges that their electronic controls system is susceptible to electromagnetic interference. Those charges must of course be investigated fully. They will be and the facts will emerge.

I will confess that watching this unfold on the public stage also makes me want to ask: are we completely incapable as a species of waiting until the facts emerge before making declarations of what to do?

It has been almost humorous to watch management pundits who know nothing of the facts - and even acknowledge as much - yet have no hesitation of prescribing what the company should do. I can forgive reporters and TV talk show hosts for doing that. I suppose they are playing their role.

Ultimately, however, I cannot help but put on the hat of my Toyota sensei who taught me to always look critically at problems and learn from them. My critical eye says Toyota is in a crisis and customer trust is at stake. This is a huge problem and Toyota needs to get to the bottom of it. Unlike the reporters and pundits, they need to find the real facts and the root causes and take action. This will be the challenge that defines the company for this decade.

So Jeff, that's why I wrote that the issue here is not the crisis but how Toyota responds to it. The issue here is for the company to problem-solve its way out of this and then to move forward. In that sense what we are seeing for Akio Toyoda and the company is a crisis - and an opportunity.

Has Toyota Lost Its Way?

Jeff: John, this discussion raises a very deep question: has Toyota lost its way?

You suggested in your last blog that the company's misfortune is productive, that it represents an opportunity to deepen the Toyota way as you knew it when you worked for the company. You seem to argue that the Toyota Way has been watered down, and that the problems really started to become serious when former president Okuda began an aggressive campaign to focus on growth, and that this dilution continued with presidents Cho and Watanabe's Global Vision 2010 plan to gain 15 percent market share.

I have a slightly different view. Lets assume we could somehow calculate the density of the Toyota Way, measuring how much of the Toyota DNA is in a person. I suspect that, as you have implied, over the last two decades we would see a lower average and larger standard deviation. I think this was inevitable as the company globalized, lost most of the original generation, and took on hundreds of thousands of outside people. Short of remaining a Japanese company, when Toyota decided to globalize, it set in motion a more challenging path forward to maintain the cohesiveness of the Toyota Way.

The American executives and managers that I speak to de-emphasize the 15% target. They saw that challenge as a wake up call: demand for Toyota products was accelerating and they needed to be prepared. The more important part of Global Vision 2010 for them was to become the most admired auto company based on exceptional quality and customer satisfaction. Another major focus was the goal of regional autonomy, creating North America as a self-reliant entity. Toyota knew at times the Americans would have to be cut loose to struggle through issues with relatively little Japanese help.

To do that in a period of intensive growth would require developing people and suppliers more efficiently. What they actually worked on over this last decade was not growth per se but the fundamentals of standardized work, quality, flexibility, flow, and developing people.

I agree that as the company grew all the new people brought on could not be as mature as the original generation. Yet I am not so sure Toyota lost its way as much as they have been struggling to grow up.

John: Yes, the growing pains that Toyota has experienced are to be expected. On the other hand, I think it is okay for our expectations for Toyota to be extraordinarily, even unreasonably, high. Toyota has set extraordinarily high standards of performance, in terms of both results and process, for industrial organizations. I think Toyota would want us to have these high expectations. Toyota certainly has the same high expectations of itself.

I was taught by my Toyota mentors to never make excuses. What often sounds to us like an "explanation" is viewed inside Toyota as an excuse. So, yes, any struggles the company is experiencing are surely a matter of "struggling to grow up" as a global organization. It's perfectly understandable that they are where they are. But, to continue with the struggling to grow up metaphor, think of how to best deal with a maturing adolescent: pointing out areas of needed development need not be taken as a blow to the ego or a negative judgment of character.

In contrast to analysts who state that the company's problems were caused by over-expansion, I believe that the decision to pursue such incredible growth was the result of the company having already lost its rock steady focus. It's not the growth strategy that caused the problems; the problems were already there and led to the decision to pursue unbridled growth.

By the mid-90s, the challenge(s) that had guided and even defined the company had been met. Leaders knew the company needed new challenges and did the necessary thing by trying to define them. Toyota as we know it was built on meeting challenges laid down some half a century earlier. At that time the challenge issued by company founder Kiichiro Toyoda was to catch up with America. The company met that challenge, led by Eiji Toyoda and others, incorporating it in the fabric of the corporate culture interpreted as being the best automobile company, with "best" defined by quality, cost, and customer first.

As a result of this, in the mid-90s, leaders chose two new challenges: growth and environmental friendliness. Environmental friendliness led to the successful development of leading hybrid technology. But the focus on growth resulted in the problems we’ve seen due to an unprepared global management system.

How Do You Grow A Culture Organically in a Period of Extreme Growth?

Jeff: John, that might be the most important challenge: to stay consistent with Toyota values and principles at a time of extreme growth. Culture is not static. It is continually evolving. An organization cannot double in size, double again, and double again and simply maintain the culture. Human systems are constantly changing, adapting, and evolving.

This was a challenge recognized by Fujio Cho in the 1990s. Like you John, he saw that the Toyota Way was weakening without the legions of Japanese coordinators and trainers. The Americans needed to become self-reliant. And so when he was in America as president of TMMK he started an effort in America to develop a formal Toyota Way document. He and the committee struggled with this. They agonized over every word and there was disagreement over whether you could even productively write it down. After ten years of effort, and Fujio Cho selected as president of Toyota Motor Company, he led them to write The Toyota Way 2001. This was published as the guidebook to culture for the entire company globally. The very fact that Toyota produced and released such a document was significant: it was an open admission that the Toyota Way would not automatically sustain itself and a serious effort was needed to continually recreate the culture.

The Toyota Way 2001 was an attempt to explicitly transfer Toyota culture. Further efforts led to Toyota Business Practices, the concrete problem solving method to put the Toyota Way into practice, and a version of the Toyota Way for Sales and Marketing. There was intensive training. It started from the very top of the organization and in a train-the-trainer mode was cascaded down. Theory in the classroom was linked to practice at every step. At the top level, senior leaders met across geographic boundaries and did projects together which led to a bonding and networking that helped link together one culture of Toyota. Toyota Business Practices required rigorous problem solving, which included presenting A3s to seasoned experts. Even at the top of the company 80 percent of the executives who made their presentations failed the first time and had to go back and improve their A3s. It was a severe learning process. As the executives learned they became the coaches and judges for their people and learned more teaching and critiquing then when they did their own problem solving projects.

I have seen many companies attempt to become lean or high-performance organization; and The Toyota Way and Toyota Business Practices training was unique. The actual attitude and behavior change I witnessed ran far deeper in Toyota. While other companies seem to run out of gas after the initial burst of energy, Toyota's deployment was still going on eight years later as a serious, effort - what you, John, have described to me as a marathon, not a sprint.

There were many other innovations developed in Toyota to continue to evolve the culture. One notable achievement was the Global Production Center, an innovative way to deeply train fundamental skills in employees (described in Toyota Talent and Toyota Culture). The idea was that training employees in the more routine aspects of the jobs efficiently (e.g., through video manuals and progressively more challenging exercises) would provide more consistency and free up group leaders to focus more intensively on the tacit skills required. Toyota also developed training in how to do on-the-job development. In manufacturing Toyota continued to cycle back to the basics of standardized work, job-instruction training, and now Toyota Business Practices to reinvigorate the group leader level or the management level. Through hoshin kanri managers were continually challenged to bring their problem solving skills to another level.

As I watched all of this I was impressed by the continual dedication to developing people. Clearly one-on-one mentoring for years is superior, but Toyota would not give up on searching for a way to maintain the cultural and skill base of the company even when there were not enough Japanese to go around.

John: In my more impatient younger days, I thought many aspects of the development of a new, global Toyota Way should go much faster. But, it may well be that the process of deeply transplanting a culture or creating a new, hybrid one simply takes this much time and perseverance. And, by "this much time," we're talking about decades. So, yes, a marathon.

That leads me to a critical observation here, which is the sheer level of difficulty of what Toyota is attempting. If a company is not so concerned about transplanting culture, it is relatively easy to simply set up operations around the world, hire the best local managers, and turn them loose. "Turn them loose" that is, except possibly with tight financial controls and other results-based metrics. If you manage by results, to use Tom Johnson's model, it is relatively easy to set up controls to "manage" global operations. But In Toyota's case, since the company manages by means rather than by results, it is necessary to inculcate each global operation with the means by which the work is done, objectives achieved. And that is what Toyota, to the company's great credit, set about trying to do when establishing its first comprehensive operations outside of Japan at NUMMI. (Just as Tom Johnson's model highlights the difficulty, Mike Rother's description of the Toyota Kata introduces an important enabler to culture development. Even more important than specific training is the establishment of the basic ways and routines through which work is conducted.)

Anyone who has ever worked in any company has at some point marveled at how difficult it can be to get a small group to be truly on the same page regarding even a simple matter. Now multiply that by the level of difficulty entailed in developing a common way of thinking about work - the Toyota Way - across the geographical and functional complexity of a global automobile company. It is so much easier to simply say, "Here are the targets - do it your way."

Toyota has taught the world much about process control, quality, productivity, problem solving, employee development - but, I hope its biggest contribution in the end is to lead the way in developing the truly global integrated management system. This is the process that was begun 25 years ago and remains the greatest remaining internal challenge for the company.

The only greater challenge may relate to the second one laid down by Toyota leaders in the mid-90s - creating more environmentally friendly vehicles. This effort has gained great momentum in recent years at Toyota and elsewhere. But, what began as simply creating vehicles that were a bit more environmental friendly vehicles may need to extend to questioning even the very meaning of personal mobility.

Thanks, Jeff, for sharing your insights.

john

John Shook
Senior Advisor, Lean Enterprise Institute

Okay, so how do you respond to a "crisis"?

My recent encouragement to Toyota President Akio Toyoda that "It isn't the crisis, it's how you respond to it' was misunderstood by some.

Many prominent public relations pundits have been chiding Akio and Toyota for their ham-fisted handling of their current crisis. But, there is a vast difference between my suggestion and the suggestions of the PR Pundits. My intent was to admonish the company to respond to the crisis by addressing any problems and making itself a better company. I was not simply looking for a better public relations campaign.

I worked for Toyota in various capacities in the 80s and early 90s and have been somewhat critical of the company in recent years. Even prior to "recent years," I have always been quick to point out that Toyota is not perfect. In spite of the praise and study and mimicking by countless individuals and companies, Toyota was never perfect, never will be.

Yes, Toyota's public handling of the case has been bungling. But, Toyota the parent company in Japan has always been a tongue-tied country bumpkin. While that characteristic has hurt them - deeply - in this instance, is that weakness the fault that we want the company to address today? Surely not. The lessons to be learned here extend far beyond yet another study of poor handling of a PR crisis, petty assertions by PR consultants and professors to the contrary.

The opportunity here is deep and profound. This is the firm that led the way to a new paradigm in industrial organization! The most studied industrial company in recent history is struggling mightily and struggling in ways that seem on the surface to be in direct contradiction to everything that was thought about the company. Has something gone wrong, seriously wrong, to the degree that the company could even fail?

Were decades of observations by thousands of researchers and others - possibly the most studied company of our time - simply wrong, or did something happen to change this exemplary organization almost overnight? Or, are reports of Toyota’s fall from grace grossly overstated?

Beyond Tainted Tylenol - Why This Crisis Has Been So Hard For Toyota
Remember, on the surface, this is all about accelerator pedals and floor mats. If so, then how could it have gotten so out of hand and hard for the company to respond? Some subject matter experts like Diane Sawyer and Yale Professor Jeff Sonnenfeld are comparing this crisis to that of Johnson & Johnson's Tylenol disaster (implying that Toyota should just take a page from their playbook) - yet the similarities are few and superficial. In the case of Tylenol, the cause was clear, had nothing to do with the company's own processes (so there was nothing to "fix"), and with the obvious danger to the public, the right course of action was clear. Heck, they could tell customers to throw away their old bottles of Tylenol. A car is a vastly different matter.

It is possible, of course, that Toyota is simply lying, as some critics are asserting. There are those who fear that there is a willful mass cover-up going on inside Toyota. It is possible - it happened at Mitsubishi - but I would be surprised. But we really don't have to guess. We will discover the truth of those assertions as the facts emerge. And they will emerge.

I do have a fear here, though it is not that dramatic. My fear is that Toyota may have succumbed to the pressure to declare a definitive fix by presenting one prematurely. The pressure to be decisive, to place the blame, to declare the problem and simple solution has been extraordinary, as it often is in American business culture. Remember Toyota is a vast organization, scattered geographically and organizationally around the globe. To piece together everything that has gone on here is a non-trivial matter.

Credibility Versus Spin
I am not defending any reluctance on the company's part to disclose critical facts. For the record, I should say that I have not spoken with anyone at Toyota about the specific problems that precipitated the current crisis. Given that, my guess (and it’s only a guess) is that the company may not exactly know all the facts yet. It may take some time to sort through the myriad actions, communications, assumptions, mistakes, and intentions that comprise this fiasco. It's my guess that, as a company, Toyota doesn't yet really know what went wrong, from either a purely engineering standpoint, or organizational decision-making or certainly a communications (internal and external) standpoints.

Some charges being made are serious and deserve to be treated as such, unlike the petty, easy pot-shots being taken by the PR Pundit crowd. I want to encourage us (all of us - accusers, Toyota, TPS practitioners, lean production researchers) to look at the facts as they emerge and try to understand dispassionately how the world's most passionate problem-solving company could find itself in this position. Toyota clearly has to take the lead here, beginning with making all the facts known. My suspicion is that the company may not yet have a full handle on all the facts. And before we jump on them for that, I would bet your pay check against mine that Toyota has a better handle on its facts than your company does on its own. I suspect that Toyota may not yet know exactly what has gone wrong. I'm referring to full understanding of the problem at all levels, the pedal and floor mat problem (which, they tell us they now understand) all the way to the broader question of how they got themselves into this mess.

It is my hope that Toyota will share with us the reflection and problem-solving that will take place in the deepest and broadest levels of the organization. What happened and why? If we lost our way, how? What lessons are there not just for Toyota but for all of us?

(Silly aside: There was – maybe still is – a bizarre practice in Japan known as "minoue soudan." In a TV show, individuals would spill their guts on TV to the great relish of the viewing public. It was more than entertainment. National viewers seemed to see themselves as vicarious participants in a national cleansing of shameful acts. Toyota could conduct the first open, corporate minoue soudan - just joking, of course, but I do hope Toyota shares as much with the public as possible.)

To that end, I hope Toyota IGNORES the petty admonitions of the public relations consultants - such as Professor Sonnenfeld - to do a better job of applying public relations Band-Aids: "In a crisis, follow these five rules, starting with getting out in front of the issue with an aggressive information campaign led by your well-coached CEO...” Understanding the deeper crisis as it plays out at Toyota will benefit us all. Better PR might get the public and government and media off Toyota's backs but will also rob us of an incredible opportunity to learn.

Akio Steps Forward
Pundits railed at Toyota president Akio Toyoda for not appearing immediately and throughout the company's sudden acceleration crisis. Caught by surprise by a reporter who tracked him down in Europe, Akio issued an impromptu apology for letting his customers down. For what seemed an eternity (but wasn't), the mess was handled by others, led in Japan by head of quality Shinichi Sasaki and in the U.S. by head of sales Jim Lentz.

Akio made his belated appearance, a hastily called press conference in Tokyo. As expected, the first headline was an apology. Not unexpected, the second headline was that his performance was deemed to be too little and too late. That was followed by an op-ed that hit the right notes in The Washington Post.

There is a long tradition in Japan of the heads of companies taking responsibility and resigning for crises of various sorts. When Japanese organizations go over a cliff it is expected that the company president or chairman issue a public apology, take responsibility for what has transpired, and resign. The leader takes the blame which constitutes a cleansing that is supposed to clear the way for others to start over with a clean slate.

I do not expect Akio to resign (by the way, the reason it is often the president who resigns rather than the chairman is due to the respective roles of the offices: the chairman deals with the outside world, often consisting of more ceremonial duties, leaving the running of the company in the hands of the president). It would be wrong for Akio to follow that path for two reasons. First it would be silly in this case since the mistakes that are coming to light were committed well before his watch (though the messy handling of the mess is a different matter). Secondly, what is the point? The point is less him taking the blame than him speaking and taking action to reassure the public. For that, he could take some lessons from his counterpart in Dearborn, Bill Ford.

Bill Ford is the great grandson of company founder Henry. Akio is the grandson of Toyota Motor founder Kiichiro Toyoda, and great grandson of the founder of the entire Toyota group of enterprises, Sakichi. Bill took over Ford Motor Company in 1999, to rescue it from floundering at the hands of executives who had headed the company in the wrong direction. His early stewardship of the company was defined by the Explorer rollover and Bridgestone-Firestone tire crisis.

In Akio's case, less than one year has passed since assuming the senior operating role - an eerily similar scenario to Bill's.

Bill Ford took on a very public role during his company's Explorer rollover crisis. But, unlike the ritualistic acceptance of blame followed by resignation (to take the shame away with him) that is common in such times in Japan, Bill Ford reassured the public, not in order to accept blame for the past, but to accept responsibility for the future. His role was to reassure, not to take the blame.

And, for the most part, it worked. He was reassuring. The work to unravel what had gone on in the past went on behind him, but he was clearly focused on the present and future.

I don't expect Akio to take such traditional Japanese action as to resign to accept responsibility for faulty accelerator pedals. But, he could certainly learn from Bill Ford's example of publically accepting responsibility to set the company right. Responsibility not for the past but for the future. I think his op-ed sets the foundation for that. More importantly, his broad experience should have him prepared for the real work of taking the company forward.

But, the point is not Akio versus Bill. The issue is not about heroic leadership, focused on the charismatic CEO who steps in and appears to take decisive control, as the PR Pundits advise. This is about nurturing a culture in which all levels of leadership embody the right thinking in their actions.

Doing the right thing
In his book The Toyota Way, Jeff Liker does a great job of spotlighting Toyota's admonition to managers to "do the right thing." Sometimes the "right thing" isn't the best thing from the standpoint of immediate or apparent business expediency. Jeff's accounting of his discussion with Jim Press is especially impressive:

"Can a modern corporation thrive in a capitalistic world and be profitable while doing the right thing? I believe that Toyota's biggest contribution to the corporate world is that of providing a real life example that this is possible. Throughout my visits to Toyota in Japan and the United States, in engineering, purchasing, and manufacturing, one theme stands out. Every person I have talked to has a sense of purpose greater than earning a paycheck. They feel a greater sense of mission for the company and can distinguish right from wrong with regard to that mission. They have learned from their Japanese sensei (mentors) and the message is consistent: Do the right thing for the company and for society as a whole. As Jim Press, President of Toyota Motor Sales in North America explained:

"The purpose of the money we make is not for us as a company to gain, and it’s not for us as associates to see our stock portfolio grow or anything like that. The purpose is so we can reinvest in the future, so we can continue to do this. That’s the purpose of our investment. And to help society and to help the community, and to contribute back to the community that we're fortunate enough to do business in. I've got a trillion examples of that."

Credibility, Not PR Style Points
THAT is the kind of "crisis management" I would love to see from Toyota - deepening even further the development of people and a culture in which everyone is focused on doing the right thing. Not PR style-points.

As I mentioned earlier, I used to work for Toyota, and 20 years ago even did a stint in their public affairs organization. But, honestly, in spite of my previous connections with the company, I was secretly somewhat pleased when the bad news began hitting the past few years and intensifying the past few weeks, not because I wanted to see the company hurt, per se, but I wanted the company to wake up, to recapture what I feared it was losing. As Taiichi Ohno said, you need a crisis.

So, my hope is that the company will overcome its current crisis, not just because I want the company to "do well." I want them to overcome this crisis because of the lessons that accomplishment would afford for us all, to demonstrate again the heights to which an organization can aim and attain. If the company is not up to that, so be it. Anyway, the great thing about this is, Laboratory Toyota continues to be there for us to observe and learn.

john

John Shook
Senior Advisor, Lean Enterprise Institute

Additional Reading:

"Toyota's plan to repair its public image," Washington Post, February 9, 2010. Akio Toyoda’s statement on the crisis. "The past few weeks, however, have made clear that Toyota has not lived up to the high standards we set for ourselves. More important, we have not lived up to the high standards you have come to expect from us. I am deeply disappointed by that and apologize." http://www.washingtonpost.com/wp-dyn/content/article/2010/02/08/AR2010020803078.html

"Inside Toyota's Epic Breakdown" by Nathan Layne, Taiga Uranaka and Kevin Krolicki, Reuters, February 9, 2010. One of the most detailed, factual accounts of the crisis, one which takes Toyota principles and history into account without giving the company a free pass. "The company's dictum holds that all workers have to ask why ("naze" in Japanese) at least five times to get to the bottom of a problem. It is not yet clear how many "nazes" have been asked by management." http://www.reuters.com/article/idUSTRE61851220100209

"What Should Toyota Do Now?" Business Week, February 9, 2010. Jeff Liker's follow-up column, offering personal hansei to the situation, and describing how the Toyota Way is the way that Toyota must approach its fundamental problems. "The point is that I do now know which of these problems is real, or where and why they occurred. (I would venture that journalist do not, either.) Toyota needs to use its own Toyota Business Practices, or TBP, to identify and solve its real problems."
http://www.businessweek.com/bwdaily/dnflash/content/feb2010/db2010029_723140.htm

"Why Toyota Won and How Toyota Can Lose," Jim Womack 2007 e-letter. "Toyota can fail and if it does the root cause will be a failure to propagate its management system"
http://www.lean.org/common/display/?o=750

"It's not the crisis it's How You Respond to It," previous Shook column. "Things can and do go wrong for any company. Yet Toyota has a special relationship with problems. The company has thrived for years by developing an obsessive focus on continuous improvement and problem solving. In Japan, they call Toyota people "problem-solving junkies." If any company can get to the bottom of an issue like this, a problem like this, it's Toyota."
http://www.lean.org/shook/2010/02/its-not-crisis-its-how-you-respond-to.html

"What’s Your Challenge?" Shook management column. "Toyota can’t exist - Toyota can't be Toyota - with a challenge." This really is an important column to highlight! "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, identity crises that will manifest itself in practical matters such as how do we develop our people, maintain our principles, and/or adapt them going forward?"
http://www.lean.org/shook/2008/12/whats-your-challenge.html

"Survive to make money - or make money to survive" Shook column exploring purpose and long-term strategy. "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."
http://www.lean.org/shook/2008/12/with-gms-demise-becoming-more-real.html

He probably didn't ask for a problem of quite this magnitude, but like it or not, Akio Toyoda has his crisis. Akio took the reigns with a proclamation that he wanted to change the company, to rid it of (his words) "pervasive hubris and arrogance" or, (my words) the same Big Company disease that he saw grip GM so deeply for so long. For about a year now Akio has been saying that he wants to take the company "back to basics." No less an authority than Taiichi Ohno said you need a crisis to truly embrace TPS. So, Akio has his opportunity.

As always with things like this (Toyota's crisis, if it doesn't go without saying) it's not the crisis; it's how you respond to it. So far Toyota hasn't responded well. The company will pay a price for that. But, if they problem-solve their way out of the quality and cost issues, the public may forgive them quickly enough.

Murphy on Steroids
Things can and do go wrong for any company. Yet Toyota has a special relationship with problems. The company has thrived for years by developing an obsessive focus on continuous improvement and problem solving. In Japan, they call Toyota people "problem-solving junkies." If any company can get to the bottom of an issue like this, a problem like this, it's Toyota.

The first thing they have to do is protect the customer. For whatever reasons, through whatever set of complex circumstances, they have failed their customers. I know that fact is absolutely excruciating to the leaders of the company now. Secondly, they have to take care of their dealers, so that the dealers can take care of the customers.

Thirdly, the company must turn its attention back to itself, to examine the root causes of what has happened throughout this entire episode. Toyota must conduct this investigation on two levels. First it has to confirm the specific technical cause or causes. People have died here. The company tells us it has figured that part out. Secondly, it must look at itself deeply and ask whether there is something more systemic going on: is there something deeper inside us as an organization that has allowed this to occur? Knowing the company as I do, there is no question in my mind that it will go through this reflection, this deep self-examination.

If Toyota finds something seriously awry deep inside the company that it has become, will its people be able to resolve the issue? After all, human organizations are imperfect. Maybe even ... yours. The question is, can we look at ourselves honestly, challenge ourselves at the deepest levels, and try to take ourselves - as imperfect humans who work in imperfect organizations - to higher, better levels? Toyota has done that in the past. Toyota has shone a light on ways that a human organization can work at levels never seen before. So, if any company can do it in the face of a crisis such as this, I think Toyota can. But, we shall see. It is up to them.

First: Protect the Customer
We all know how this works in the factory. When you encounter a problem, your first responsibility is to protect the customer - in the factory this is the following process, the immediate downstream worker. That means, before you "encounter a problem" you have to know how to spot a problem, you have to know what a problem is. Then you need to know exactly what to do, what action to take, once you've spotted one. That action is to call for help, for someone to come help you decide what to do. Those two actions together are known as "stop and notify." Then you need to know what will happen next (if you expect to be blamed, you probably won't be eager next time to "stop and notify"!). So, what will happen is that someone (your team leader) will come to your aid. He or she will take a look and make a quick decision of whether to (1) apply a quick remedy, (2) stop the line, or (3) let it go through marked for remedy later (with 1 or 2 being BY FAR the preferable alternatives).

Having handled the immediate problem, the next step will be to stop and ask if there is a deeper root cause to investigate: Is this a repeating problem, is there a pattern to its occurrence, does engineering need to be notified? And so on.

That's in a factory.

The same sequence of steps is playing out now for Toyota with their massive accelerator, floor mat, sudden acceleration crisis. Right now, they are in the "stop and contain the problem to protect the customer" phase. They must protect the customer and take care of the dealers so the dealer can take care of the customer (reminiscent of the principle laid down by Shotaro Kamiya, developer of Toyota's approach to sales & marketing: "Customer first, dealer second, company third!"). Separately, they will need to go back and thoroughly analyze exactly what happened and why

Slow to Respond ...
Toyota's response to the gas pedal, floor mat, sudden acceleration problem has been slow and curiously ambiguous. What sounds simple enough on the surface (gas pedals and floor mats for crying out loud) has turned into a massive crisis for the company. One would think that if a simple mechanical fix could fix it, the company would have already done what it needed to do. Now additional technical issues are being raised.

Scrutiny of problems attributed to the accelerator pedal and floor mats is leading to scrutiny of the ETCS-i system it has used for the past eight years and could even lead to scrutiny of the electronic controls on vehicles going back even further. And that is an issue that is far too messy to want to deal with in the midst of a media circus like this.

Regardless, the result is that since Toyota failed to respond adequately in a timely manner to the acceleration problem, the company now finds itself in a credibility crisis. EMI has been a smoldering issue for the entire industry for a long time. Whether Toyota's sudden acceleration crisis trail leads to EMI is yet to be determined. But the underlying problem with EMI (as I understand it) is that it is indeed problematic and no one fully understands it. Not just Toyota, no one in the industry.

Credibility
Sounds like a long way from floor mats. And, technically, it is. But, perception is now one of the most important matters at play here - perception and reputation and credibility. And credibility along with the trust it has engendered with its customers has been Toyota's greatest strength. That credibility and associated trust equity has carried them a long way. But, now the company is expending much of that equity. It may come down to, "What did the company know and when did it know it?"

So, Akio has his crisis.

Crisis gives occasion to greatness. Without the crisis of 1950 and Toyota's determination to be the best in spite of its disadvantages, Taiichi Ohno would have been just another good production manager, remembered fondly by those who worked for and with him, not revered throughout the global manufacturing world. All accounts are that there was nothing to indicate that Abraham Lincoln would be a great leader - it took a national crisis to bring out the greatness.

Akio was born the year before his company first tried and failed to sell cars in the US. Those cars were so bad - they couldn't sell them and they weren't worth sending back to Japan - they ended up dumping a bunch of them in the Pacific Ocean.

So, for Akio now, this is his crisis. And his opportunity.

john

John Shook
Senior Advisor, Lean Enterprise Institute