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Is Toyota No Longer a Guiding Light?

3/9/2010
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Dear Gemba Coach,

I'm the lean manager of a mid-sized company, and have been getting teased by many folks about Toyota's troubles. It's mostly good-natured, but I fear the public flogging gives nay-sayers an argument for not doing lean. So I am unclear about how to respond to these critics. What advice do you have on what I should tell my employees who are doing lean work?

As you can imagine, I get a fair amount of ribbing about Toyota as well these days. And, as you say, most of it is quite light-hearted. Moreover, I believe that at the Gemba, the people who do lean seriously are far too involved with their own issues to worry about what happens to Toyota as a shining example on the hill. By now they have seen enough of the benefits for their company not to challenge the need for lean.

Personally, I see this as a coming of age moment for the lean movement. By losing the "Toyota walks on water" argument, we will now have to justify lean on its own merits - which will make us all that much stronger. One of our core challenges from the start has been to break out of the "you either get it or you don't" mindset, and bridge the gap with people who see lean change more cautiously than we do. After all, that’s the very challenge Toyota has had to face internally over the seventies and eighties.

What is happening with Toyota? And how does this relate to our own Gemba? I have been intrigued by three different aspects of the hoo-hah. First, the issue of why Toyota got so dragged in the mud all of a sudden. Did they really become that bad and were been able to hide it for so long? Or did they get caught in yet another round of 'gotcha' politics? Second, what really has happened at Toyota? Have they lost their way? And third, how are they responding to the crisis? Let me preface my comments by saying that I have no special information other than what is said in the press, discussion with other lean experts and the people I know in Toyota, but I’ll try to clarify the picture as I see it.

Three Main Issues
On the first point, let's get some perspective. Out of a list of 20 automotive manufacturers in the U.S., Toyota comes in as the fourth safest, in percentage of incidents reported to number of cars sold, after Smart USA, Porsche, and Mercedes-Benz. They’re ahead of Honda, Subaru and Hyundai, and the U.S. OEMs. And this data comes from the NHTSA complaints database. So, it doesn’t look like Toyota turned out to be bad - just that they're not perfect. Big surprise, right? Somehow they badly mishandled their relationship with the safety board and ended up with a major conflict on their hands. Clearly much of the media storm has more to do with the fact that no one likes a wise guy, and it's time to take Toyota down a peg. In terms of lean, this doesn't change things much. The lean promise has always been to perform at a level competitors struggle to follow (for instance, one can argue that the size of Toyota's current recalls can't be easily replicated by its cash-strapped competitors). For those who seek the perfect company, the philosophy class is next door.

So, Toyota doesn't look to be in any real peril right this minute, but it still has taken quite a hit in image, which will translate into lower sales in an already depressed market, and, if issues keep cropping up, the damage might be lasting. This is the largest perception crisis (How the mighty have fallen! and so on) they've had in a decade, so they did mess up. Three main issues are emerging out of the noise. First, the technical issues about floormats, sticky accelerator pedals, braking systems in the new Prius. There are possibly electronic glitches, yet Toyota denies that this is the case. Second, they were slow to respond to customer complaints, and there is evidence they vigorously lobbied the safety board to avoid doing the recalls all the way back to 2007 or earlier. Third, there's been a lot of discussions about whether they have "lost their way," which would account for the two prior issues.

What is interesting in the case of the floormats and the sticky accelerator pedal issues is that they both involve partners working with Toyota. In the floormat case the owner or the dealer who installs the wrong floormat. In the sticky pedal, the supplier who developed the part (there seems to be no problem with the same part developed by the Japanese supplier). We have not heard Toyota try to shift the blame to either, and in this they are behaving consistently with the values of teamwork in the Toyota Way. Still, in my own Gemba experience, all the really bad quality issues I've witnessed - those that end up in a CEO to CEO phone call (and heads will roll) - have been related to supplier problems. This is not very surprising as internal issues tend to get caught, whereas supplier glitches are a lot harder to spot. Furthermore, many of the quality disasters I've witnessed were due to poor interaction between the design and the supplier manufacturing processes.

There is a real lean lesson here concerning the source of quality. By its very nature, the lean transformation starts with one's own shop floor. As the lean system matures, lean activity moves upstream towards engineering, and downstream towards suppliers. This evolution is slow, because lean in our own operations is already hard and resource-consuming, and having the know-how and the resources to talk to engineering and suppliers is far from obvious. Talking to engineering people about supplier issues is rarely the first thing on the agenda. So one of the true weaknesses of lean practice that I observe (and believe to be a difficult flaw to correct) is that engineering/supplier interactions are "leaned" late in the process. This tends to be reinforced by frontline managers who already feel overwhelmed by the current issues they have to solve, and have trouble accepting that supplier concerns are their problem as well.

Technical Limits of Kaizen?
The braking glitch in the new Prius is a very interesting case. The error has been attributed to the electronic system, which might be something that lean cannot do justice to. As a movement, we have a lot of lean experience in shop floor operations. There is some lean experience in software development (and indeed I wrote about this in a previous column. But, so far, I've not come across any case of lean activities dealing with electronic design. I'm sure there must be some - but I've not seen one. As Kenichi Ohmae points out in his New York Times piece - Kaizen may not be well adapted to the complexity of electronics systems. Whether it is or not, I can't say. I have not yet seen a meaningful experiment in this area.

I suspect that part of the reason Toyota has been flummoxed by the technical issues is that they have cropped up in areas where the lean system is simply not as strong as it is elsewhere. And here there might be a larger problem. As Toyota has expanded rapidly, it has also driven value engineering and cost pressures very hard on engineering and suppliers. TPS is not so strong in these areas, particularly outside of Japan (Japan's engineering is more experienced, and many Toyota Japanese suppliers are part of the Keiretsu and have a number of ex-Toyota staffers in their management). Reports of how Toyota has dealt with the economic misery of the past few years show that the plants have reacted in an exemplary lean fashion, by retaining full-time employees and using the downtime to further improve plant quality. But the technical issues we're seeing here don't come from production. Furthermore, with the commonalization of parts (which is brilliant from a cost perspective), one problem affects a large cross section of vehicles. The upshot is that we can expect more of these issues to crop up. My bet is that they will share the same characteristic of engineering/supplier interactions; and be equally hard to pin down and fix. As lean guys, we have a real challenge there: how do we work more closely with engineering? And how do we extend what we do to suppliers without losing momentum internally?

Toyota has also been hammered for being slow to respond to customer complaints. Toyota's reply has been that they get so much customer information from across the globe that they were slow to connect the dots; and, that they have not been able to replicate the alleged defects. As I understand it they have a global system to collect customer information from their dealers, and when they spot a specific issue they then narrow it down and chase it on location. The political debate is about whether Toyota was unaware of the problems, and reacted spectacularly when it found out; or whether it did in fact know, and like any other greedy corporation fudged the issue hoping to get away with it.

I personally find it hard not to believe in some arrogance from Toyota headquarters in the light of the adulation they've had over the last ten years. Human nature is what it is, and even though Toyota leadership carefully cultivates a feeling of healthy paranoia, the temptation to "game" the system is always strong. As always, incidents are created by a mix of factors which combine unluckily, and the difficulty to find a smoking gun allied to headquarters hubris can well have led the company down the path of trying to lobby its way out of the recalls rather than fix the problem (certainly, the Prius braking problem would not have warranted a recall in "normal" times, but a rolling fix at car maintenance time). The lesson for lean is to constantly, constantly check the information flow from customers. It is so easy to get caught into the day to day of solving internal problems and losing the customer perspective.

Customer preferences will always change and evolve. Because this question of value evolves, companies that seek to truly satisfy customers must have a robust process to pick up and understand these customer preferences. Again, because this is usually what marketing does, lean programs tend to be weak on that front. Maintaining the discipline of solving one customer complaint a week, for instance, is a healthy way to keep focused on what customers really want right now, and something we should all bear in mind when we do lean on the Gemba: where is the customer NOW!

All this leads up to several fundamental questions. Has Toyota lost its way? Or is the Toyota Way flawed? So far, Toyota execs have gone out of their way to reinforce their belief in Toyota Way values and take responsibility for any straying from it. Akio Toyoda stated clearly that the priorities of the company have always been Safety first, Quality second, and then third, Volume. But the massive demand for more Toyota cars in recent years and the lure of the top spot on the podium may have gotten those priorities confused. If we give the company the benefit of the doubt (and as lean guys, we're kind of obliged to give them the credit), here's how the whole mess reads:

  • Toyota is slow to recognize the problem (and yes, there probably was some hanky-panky at Toyota's U.S. headquarters in terms of avoiding publicizing the incident), due to the rarity of cases and the difficulty of pinpointing the fault

  • When it did, Toyota triggered both a stop-the-line and a spectacular recall; Akio Toyoda has reiterated that the longest standing tradition of the company is to stop and think when it comes across a problem

  • Toyota executives have repeatedly taken responsibility for the problems and asserted they must make more efforts to put customers first

  • Under fire, Toyota's top leadership's reflex has been to reexamine the process leading to recalls and to come up with process changes (as opposed to knee-jerk reaction)

  • Toyoda's final point at the end of his statement was the need for Toyota executives to drive the cars and go and find out what happened on location, reinforcing strongly "go and see."

From the lean point of view, a striking aspect of the incident is that in the arena facing the lions, Akio Toyoda has professed as strong a statement faith in the Toyota Way as could be. Clearly Toyota's leadership is not questioning its basic principles, but taking responsibility for straying from them and committing to return to the Way.

None of this makes a case against lean. The picture it paints is one that we'll all recognize. Toyota execs are as human as the next guy, and they got caught on the one hand with a runaway growth suddenly halted by the recession (a recession which sent GM in Chapter 11) and on the other hand, undoubtedly some degree of overconfidence from having had such a free pass from the media so far. Doesn’t that sound familiar? I can't think of one company I've worked with to whom this has not happened at some point or another.

What is unique about lean is not so much that people never falter, but their reaction when they do: accepting responsibility for mistakes, recognizing where and when mistakes were made, having the will to fix the process to prevent these problems from reoccurring and having the know-how to do so. So far, Toyota is keeping to the lean script. Whether they’ll be able to go to the end of the analysis and solve the problems is anyone’s guess, but they sure will try.

Inspirational Response
Is Toyota no longer a guiding light? Well, maybe I'm simply too close to this issue, but this Gemba Coach has found Akio Toyoda's response to the crisis inspirational. On the Gemba, I've never expected not having problems. Actually, on the Gemba, one of the issues I worry about constantly is the black swan - the unlikely combination of factors that will lead to a disaster. I've lived through my fair share of catastrophes and it's not much fun. More to the point, it hardly shows people in their best light. In this respect I am more than impressed by Toyota's acceptance of responsibility and willingness to take a beating.

This is uniquely uplifting because one of the drawbacks of the lean commitment to "problems first" is that, well, it's sometimes a bit depressing and living it happily requires a good dose of optimism and the firm belief that any problem acknowledged and recognized will be solved because of everyone's motivation and ingenuity. Watching Toyota's President take the tsunami wave head-on and not wavering from the basic tenets of the Toyota Way tells me that if he can do so, so can we all, and that no matter how tough the situation, facing challenges with creativity and courage will pull us through.

What should we tell people about lean and Toyota’s woes? Is Toyota still a model of lean? Personally, I believe that Taiichi Ohno started us all on the lean journey with a straightforward intuition: wrong-headed thinking - misconceptions in his terms - adds unnecessary costs to any activity. The two most obvious misconceptions he fought against in his time were producing ahead of demand and keeping production running although something is not right. Toyota as a company is having to re-learn these fundamental lessons. When the 2008 crisis hit, the company found itself brimming with inventory, and indeed they are working hard at pacing production again to fit with actual sales volumes rather than build up stock. The second lesson they are grappling with again is not to let abnormal situations pass but stop and solve the problem, no matter how embarrassing or difficult. Sudden acceleration must be dealt with - and the root cause identified.

For all of us in the lean world, John Shook has pointed out a large misconception: the Toyota Production System should not be confused with Toyota's production system. One is a set of interrelated activities one pursues to better oneself, the other is the hodgepodge result of Toyota's real-life evolution. Those of us who have studied Toyota more closely have never been under the illusion that the company is perfect, and indeed, many of us aren't surprised that some of its issues finally surfaced (although the vehemence of the U.S. government's attack is startling - but, hey, the U.S. OEMs had to walk the gauntlet last year). Nevertheless, Toyota's reaffirmation of the principles of the Toyota Way in the face of the storm is exemplary, if only for its resilience and the scope of its reaction, and my money is on Toyota wowing us with the way it's going to solve its current problems. I, for one, believe that the company will continue to inspire us for a good while still.

To hear other points of view on lean implementation, join me on The Lean Edge.

1 Comments | Post a Comment
Chak March 18, 2010
If the challenge is the gap between engineering and suppliers, maybe Toyota could produce the outsourced parts inhouse first and delegate it only after it has it right. Or get the Japanese suppliers to collaborate with the American suppliers to get it right.
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