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Toyota Trouble: A Dialogue with Jeff Liker (AKA the Coffee Shop Talks)

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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 Shook
Senior Advisor, Lean Enterprise Institute

3 Comments | Post a Comment
Jean Vieille February 25, 2010
True, it is diffuclt to believe that Toyota become so wrong all of a sudden.
Dan Davidson February 26, 2010
I think you're letting Toyota off the hook. There are proven technques during automotive development process such as FMEA and FTA that should have caught these issues. Giving the excuse that vehicles are complex systems does answer where did the design team miss this during development. Based on severity ratings in failure mode analyis, failures such as these should be rigorously analyzed. Plus, other companies had been implementing countermeasures (ie. brake signal over-rides throttle signal in engine control module) for a number of years. Where is Toyota's famous benchmarking process? Totota needs to ask these hard questions, and improve. Their reputation will take a hit for the next decade based on this (see Ford/Firestone for comparable impact).
Mark Gilligan February 27, 2010
From what I have read I would suggest that that Toyota may have several problems that may or may not be strongly related. I suspect that the problems are related in that they were not identified until the system was stressed. While Toyota tries to stress its manufacturing operations to find problems and improve it is harder to do this for other systems.

The Toyota model is based on replicating its culture which was created in the Japan and I would suggest top management has an essential Japanese world view. In manufacturing and other internal operations this unique culture is an advantage. The problems tend to occur when dealing with external organizations such as the American press, congress and regulatory bodies. When Toyota headquarters responds the same way they would have in Japan we have a classic cultural disconnect.

The reports of an individual who bragged about saving 100 million dollars by avoiding a recall suggests a cultural problem in their management and administration ranks. I would suggest that this problem was influenced by the fact that the Toyota culture is not likely as strong in those parts of the organization where they have to deal with regulators and by the pressures from the economic downturn.

The recall problem was associated with design and not manufacturing quality. Thus while Toyota has improved the quality of manufacturing, solving the design issues will requiring focusing on the design process which by its very nature is not a highly defined process.

A common thread is that as you move away from the manufacturing origin of the TPS the harder it is to create mature, resilient processes. This is complemented by the fact that many of the tools used in the manufacturing environment do not translate easily to this different environment.
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