Welcome to Kaizenlog.com If you're new here, you may want to subscribe to my RSS feed , Twitter You can contact us by using the contact form or submitting a comment. Thanks for visiting!
The Toyota Way
Leadership Lessons from one of the World’s Greatest Companies
Patrick Clark
Financial Controller , Michael Debono Ltd
2nd April 2008
Michael Debono Ltd
“Everyone should tackle some great project at least once in their life”
Sakichi Toyoda
father of Kiichiro Toyoda
founder of Toyota
Themes
Diligently Apply to the Right Pursuits
Strive for Continuous Improvement
The Power of Humility
Rid All That Adds No Value
Improve Quality by Exposing the Truth
Raise the Bar to Unreachable Heights
Long-Term Strategies over Short-Term Fixes
Learn the Customer, Live the Customer
Take Time to Study, Then Implement with Speed
Let Failure be your Teacher
Themes (contd.)
11. Cultivate Evolution
12. Plan Big, Execute Small
13. Manage Like You Have No Power
14. Carefully Cultivate and Support Partners
15. The Power of Paranoia
Introduction
Toyota’s credentials in management
Massive success story - it has not posted a loss in any quarter since 1950.
While others were struggling, it was forging ahead.
It defied long accepted theories of cyclical trends in the auto industry - it was relatively impervious to oil crises etc..
Its measure of success is not merely numbers but being the best at what it does
The following are the:
Principles
Lessons
Strategies
which make it one of the most successful and inspirational companies in the world.
Toyota’s Credentials
Toyota Motor Corp.
2007/2006 IW 1000 Rank: 8/9
Executive 1: Fujio Cho, Chairman
Executive 2: Katsuhiro Nakagawa, Vice-Chairman
Revenues (US$ Millions)
176739.18
Revenue Growth (%)
13.4
Net Income (US$ Millions)
11528.21
Earnings Per Share (US$)
3.54
Total Equity (US$ Millions)
88722.4
Profit Growth (%)
17.15
Profit Margin (%)
6.52
Return On Equity (%)
15.17
Debt To Equity Ratio (%)
0.53
Market Cap (US$ Millions)
200300.00
1. Diligently Apply to the Right Pursuits
” If we only tried to achieve the results and the objectives, then results and objective would not be sustainable”.
Mitsuo Kinoshita (Toyota executive vice president)
Diligently Apply to the Right Pursuits
Focus on your ideals, implement and maintain a business structure that encourages every employee to be actively engaged in pursuing the company’s goal. Result - a self regenerating and internally combustive enterprise.
Pursue Perfection Relentlessly.
Toyota started its business on this basis and developed the Automatic Loom
It registered more than 100 patents in 40 years (1867 - 1930)
Conquer New Territory
In late 1920 textile patents sold to Platt Bros for today’s equivalent of $20million to finance research & development of motor vehicles
Since 1950 operations in 30 countries, products in 170 countries.
Diligently Apply to the Right Pursuits
Commit to What Matters Most
Success can easily detract employees (especially executives) from the real goals of the company.
Lead to a self-centered sense of belonging, clouding the objective.
Commitment to continuous improvement and customer satisfaction should be paramount.
If all employees are committed in this way = world class company.
Be Willing to Improve
Employees must subscribe to the belief that anything can be improved and that they have the ability to do it.
Philosophy based on serving people including its employees, its customers and the wider public makes a company successful in any type of business.
The Original Toyoda Precepts (1935)
Be contributive to the development and welfare of the country by working together, regardless of position, in faithfully fulfilling your duties.
Be ahead of the times through endless creativity, inquisitiveness and pursuit of improvement.
Be practical and avoid frivolity
Be kind and generous; strive to create a warm, homelike atmosphere.
Be reverent, and show gratitude for things great and small in thought and deed.
2. Strive for Continuous Improvement
” Something is wrong if workers do not look around each day, find things that are tedious or boring, and then re-write the procedures. Even last month’s manual should be out of date”.
Taiichi Ohno (ex-TMC vice president)
Strive for Continuous Improvement
Good can always be made better, even great can be greater.
Participation - Managers and employees work closely to constantly challenge for better solutions even when all seems to be working well.
TPS - Toyota Production System.
A collection of manufacturing methods that incorporate three key philosophies:
Customer first
Employees satisfaction
Company stability
Strive for Continuous Improvement
TPS is only a part of “kaizen” (continuous improvement), it will not work alone.
TPS is mainly built on two principles:
Just-in-time - reducing wasteful inventory by using only “what is needed, when it is needed, in the amount needed.”
Jidoka - the ability to stop production lines by man or machine to safeguard quality.
TPS is not a tool but a professional way of life that is bigger than management style.
Understand the Evolving System
Involve all employees in the improvement processes.
Introduce employee suggestions schemes (paying).
The Improvement Cycle
PDCA (Plan-Do-Check-Act) = higher standards.
Strive for Continuous Improvement
The “horenso” Culture
“horenso” is a detailed progress report on issues or problems for self or others use leaving a trail of explanation.
Based on principle that work should be interchanged.
Continuous Improvement (kaizen) is teaching people to think for themselves and find a better way to do the job… to take overall ownership of a task.
Implementing kaizen:
Identify trouble
Determine the root cause
Develop a solution
3. The Power of Humility
“Once you buy into the system, you have to live the life.”
Gary Convis - Senior executive advisor, Toyota
The Power of Humility
Humility is the quality of being modest and respectful.
Lead by Example (don’t give others reason to doubt)
For senior managers to be taken seriously by employees their actions must be consistent with their policies.
e.g. in a cost-cutting exercise seniors should not exclude their perks from the equation.
e.g. seniors should ensure that they are no visitors to the floor area (of their responsibility).
e.g. discuss and find solutions jointly with the staff to ensure participation.
e.g. office set-up should be in such a way that is conducive to communication and teamwork.
The Power of Humility
Examples of Toyota humility
One Ford executive entrusted with Ford’s revival drummed up a air travel bill of US$273,000 in one quarter alone. Similarly TMC‘s Watanabe in Japan travelled inter-city by bullet train.
Senior executive perks were not dissimilar to their competitors’ but they did not have massive salaries and severance monies, yet they worked longer hours.
Top Toyota officials do not chastise lower ranking peers for identifying problems.
Toyota made no official statement upon reaching the global No.1 spot in 2007, despite GM’s attempt to challenge the results.
The Power of Humility
Maintain Proper Perspective
One of the most important investments in the future is the culture.
Toyota has set up Training Institutes globally specifically to teach the culture
In a work culture characterized by blame, excuses get in the way of openness and willingness to learn.
Employees are encouraged to find solutions and improvements to their customers’ benefits.
A company cannot thrive on its processes alone if its employees do not start work with the right philosophical foundation.
4. Rid All That Adds No Value
“A place for everything, and everything in its place.”
Samuel Smiles - author “Self Help”
Rid All That Adds No Value
Progress comes not just from moving forward but also from removing hindrances along the way.
The ideal conditions for making things are created when machines facilities and people work together to add value without generating waste. This principle is applicable to the entire organisation.
Reduce Clutter, Reduce Ills
Clutter is distracting and should have no place in a system. Add a commitment towards the environment and the result is a spot-less work-place.
e.g. Toyota manufacturing facilities max make use of reusable and recyclable packaging & materials such that their factories are ZERO LANDFILL .
If you do the right things in business, the customer cannot help but notice.
Rid All That Adds No Value
Never Surrender to Never-Ending Waste
Continuous improvement is conducive to less waste.
Employ improving techniques such as observation, video surveillance etc..
TPS identifies seven types of waste:
Overproduction - Produce only what is necessary or required by customers.
Waiting - Eliminate idle time.
Excess conveyance - Stop unnecessary movement of parts.
Over-processing - Cease all action that do not benefit the customer.
Excess inventory - Maintain a “buy one” “sell one” philosophy.
Unnecessary motion - Reduce movement of people and equipment.
Defects and corrections - Stop defects at source before moving on.
Sources of waste are infinite but so is the employee’s ability to eliminate it.
Rid All That Adds No Value
Seek Value Innovation
A new concept introduced by Watanabe in 1992 deriving from CCC21 project.
Eliminate waste by:
Working closely with suppliers to help find waste and reduce costs without compromising materials and quality.
Identifying multiple use of parts and products i.e. a leaner number of components.
Go back to the origin of product development with suppliers to imrprove designs and design processes.
Result - consumers will receive more quality for less whilst maintaining Toyota’s competitive edge in the future.
5. Improve Quality by exposing the Truth
“The world-class quality we have built is our lifeline.”
Katsuaki Watanabe - President of Toyota Motor Corporation
Improve Quality by Exposing the Truth
Seek the Source of a Problem
In 2006 Toyota suffered record recalls though levels were still at circa 50% of competitors and JD Power ranking were still at the highest. Nonetheless TMC was apologetic and immediately took steps to rectify.
Toyota Steps to Quality
Speak up immediately when problems are recognized, no matter what. - pull the cord.
Ask why (at least five times) to reach the root cause.
Go to the source of the problem and see for yourself.
Improve Quality by Exposing the Truth
Pull the (”andon”) Cord
A an expression based on the TPS system in manufacturing whereby an operator is obliged to pull a cord, illuminating a lamp and stopping the production line if a problem is detected.
Also applicable to management, e.g.
2006 recalls - slow R & D to recover quality pace + apology.
2006 US harassment lawsuit - new policies for investigation of employee conduct globally + apology.
Ability to “pull the cord is as essential as going to work.
Ask “Why” Five Times
Questions are gateways to the truth.
Repeated interrogatory usually reveals the root cause.
Improve Quality by Exposing the Truth
Go and See For Yourself
To know a problem, you have to see a problem. Hearsay has no place when striving to be the best.
Go to the source - Genchi Genbutsu - daily floor walks are a must for a manager to understand the roots of problems.
Exemplified originally by Kiichiro Toyoda himself in his business trips to the US & UK to study solutions to his problems in loom production and eventually motor vehicles.
In R & D, this concept means you invent not copy.
Going to the source of problems to find solutions give you control over your future, i.e. you control your own destiny.
6. Raise the Bar to Unreachable Heights
Toyota said “We’re going to be the best”… and that’s how they built the Camry
Dick Landgraff, ex-Ford vice president
Raise the Bar to Unreachable Heights
The philosophy here is to give the customer more than he is expecting; exceed customer expectations.
The Lexus Story is a typical example. Toyota set out to:
design a luxury car blending reliability, sleekness and sophistication that exceeds the competition.
create a totally in-house experience
build the best luxury vehicle in the world.
Redefine Classes with Standard-Setting Products
By building and positioning products to be leaders in the class, a value relationship is maintained with the client.
gives a competitive edge especially in tough market conditions
Improves customer retention.
Raise the Bar to Unreachable Heights
Exceed Customer Expectations
Typically exemplified by the development of the Camry in US.
In a market dominated by mid-sized sedans in 1992 an extra effort was made by Toyota in the development of the 4th generation Camry to surpass the Ford and Honda.
Result - a car with a bigger interior, more power, unequalled engineering and yet at the same price as the competition, the Camry became the best-selling car in the US and still retains this honour, now in its 6th generation.
Create Value Across the Board
Being the best is about giving more in all areas.
Little things often unseen create market place differentiation.
Toyota can add more to its vehicles because it has less employee benefit bills than its competitors.
7. Long-term strategies, Short-term Fixes
Great results cannot be achieved ay once; we must be satisfied to advance in life as we walk, step by step.
Samuel Smiles - author “Self Help”
Favour Long-Term Strategies Over Short-Term Goals
Typically in many large organisations seniors execs are appointed with a mission, earn hefty salaries and bonuses, then quit leaving successors to face the eventual consequences of their decisions. This has led to e.g.
heavy discounts on products (in high stockholding)
‘push’ system of production (instead of ‘pull’)
Make Daily Decisions That Benefit Long-Term Plans.
Short-term strategies are short-sighted due to the changing trends and economic condition.
Short-term strategies expose the company to large fluctuations in its fortunes while:
Long-term strategies are conducive to a more linear and sustainable growth pattern.
Favour Long-Term Strategies Over Short-Term Goals
Examples of short-term strategy failures in the motor industry.
The 1990s saw a boom in the SUV market and GM invested heavily in SUVs as its solution to financial recovery. But the SUV market increasingly lost ground in the oil price crisis. Meanwhile Toyota was researching hybrid technology (Project Global 21) and has since sold over 1 million hybrid vehicles.
Ford Motor made a profit of $21billion in 1998 but lost $12 billion in 2006. GM lost in excess of $10 million twice in 15 years. Toyota has consistently posted a profit since 1950.
Don’t Overinvest in the Flavour of the Day
In its zeal to exploit the market GM invested in the Humvee in 1992 and transformed the vehicle into an SUV on steroids. Subsequent models launched were the H1 with an average consumption of 10mpg. Soaring oil prices in 2006 et seq mean that GM has had to re-think its Hummer line-up completely in favour of smaller vehicles…while TMC was into hybrids!
Favour Long-Term Strategies Over Short-Term Goals
Don’t Watch the Stock Price
The focus of decisions should not be the positive numbers themselves, but rather the things that contribute to them.
Positive numbers cannot be used as guidelines to influence core principles.
Focusing long-term decision making to the long-term is not often successful without a commitment to implementation.
Working for the long-term is a mindset that what is good for tomorrow is best for today.
Prioritizing goals is key.
Understanding that the leading objective is something other that surpassing last month’s figures - the Customer.
8. Learn the Customer, Live the Customer
“We make things everybody thinks we should make”
Katsuaki Watanabe - President TMC
Learn the Customer, Live the Customer
Arrogance and pride (hubris) are the silent killers of business.
Avoid Hubris
Arrogance and indifference to customers can derail any company regardless of size and competitive position.
‘Take it or leave it’ attitude is a fallacy.
Listen to the market.
Take to the Streets and Observe
Design products and services that people want. Do not try to impose your products on people.
Toyota has set up a European Design Centre ED² to develop cars that appeal to the European consumers, typically Yaris and Auris.
Development of the IQ; a small compact four-seater of high quality.
Project Scion in the US.
Learn the Customer, Live the Customer
The three principles to observe:
Learn the Customer
Live the Customer
Empathize with the Customer
Don’t Fight Changing Trends
Persisting in doing the same thing without acknowledging change is a recipe for failure.
Such as persisting in pushing gas guzzlers in lieu of smaller and more economical cars in a time of crises such as present.
Never Stop Chasing a Moving Target
Statistical records such as market ranking etc. reflect history.
Being No.1 is not possible because Toyota is focused primarily on the customer, and the customer is always changing.
The customer is a moving target, the customer always wants more.
9. Take Time to Study,
Then Implement with Speed
“When the decision is made to act, we move fast in execution because everyone is already fully bought in and in accord.
Jim Press - former president TMNA
Take Time to Study, Then Implement with Speed
Decisions should be made on the basis of collected facts not individual opinions, and facts take time to gather and assess properly.
Move Forward Step by Step
Meticulously execute a plan one step at a time taking into account all facets of every decision.
The execution of a plan is a series of decisions, if one is taken wrongly the entire plan could be in jeopardy.
On a macro scale this can mean very costly error(s).
Exemplified best by Toyota’s entry in the US.
Gather Facts Firsthand
Adopt a hands-on learning (fact-gathering) experience.
Remove all barriers at the planning stage
Then act!
Take Time to Study, Then Implement with Speed
Toyota’s largest fact-gathering experience - the USA.
In 1984 TMC enters a joint venture with GM - NUMMI to manufacture cars in the US.
TMC’s scope was to see whether TPS would work in the USA and to learn their culture.
Having seen success at NUMMI, TMC opens its own first plant in Kentucy.
Then add Build-Speeds
After fact finding and planning stages, then act with speed.
TPS enables fact reaction, lean, cross-functional cooperation, collaboration and support between departments.
Toyota’s average time form concept to production is 24 months compared to approx. 30% better than its competitors.
Toyota spends three quarters of the time planning and considering, then implements with speed.
10. Let Failure Be Your Teacher
“Men often succeed through failures not success. Study, advise and example could never have taught them so well as failure has done”
Samuel Smiles - author “Self Help”
Let Failure Be Your Teacher
All companies make mistakes - no exception. It is how they respond to these mistakes that makes the difference.
Turn Mistakes into Success
Addressing a bad situation aggressively and openly is better than an embarrassing alternative.
Take effective action immediately
Remedial action should exceed customers’ expectations
Make sure the problem is addressed at the roots to avoid a recurrence.
Make Problems Top Priority
Managers and employees tend to report good news first.
Toyota policy is opposite, report problems first.
To get better everyday, problems must come first.
Let Failure Be Your Teacher
“Even when successes are discussed in a meeting, delve deeper and figure out what more could have been done to better the result.”
Fujio Cho - Chairman TMC
The bottom line is:
Problems must be made visible
Early detection and resolution is the key.
In 2005/2006 Toyota suffered the highest rate of recalls as a result of the CCC21 cost cutting program. Watanabe’s response was a public apology and a commitment to improve. In the face of such humility, the public is more forgiving.
11. Cultivate Evolution
“To grow effectively, you have to be willing to evolve”
David Magee - author “How Toyota became No.1″
Cultivate Evolution
Expanding a business overseas effectively means dealing with different cultures. Times change and so do people. What works in one region may not necessarily work so well in another. What was good for yesterday may not be good for tomorrow. In this scenario it is very important to:
Adapt to communities and their customs, but
Focus on the system, not the people.
View Change as an Opportunity to Learn
The best teachers are learners as well
One must not assume he is right but strive to get principles uniformly in place so that rightness ultimately prevails.
Adaptation in today’s environment is of principal importance.
e.g. Toyota personnel in the US to live like Americans. To understand the culture, to evolve along with the market; Prius, Scion, Camry.
12. Plan Big, Execute Small
“The true measurement …is not what you have taken, but what you have given in return”
Jim Press - former president of TMNA
Plan Big Execute Small
Any one of the world’s greatest structures is made of smaller components very much like a business project. Each must fit the overall plan seamlessly for the project to work perfectly.
Big success means no small component can be disregarded.
Sometimes the component is not even a business consideration in itself but a consideration for people. e.g. the welfare of the community where an investment is made.
Toyota has treated its worldwide expansion with an overall vision for its growth based on the careful execution of numerous small tasks.
Build Products where Products Are Sold
Toyota’s philosophy is to build products regionally when volume levels warrant the capital investment, and to contribute to the community as a local citizen (company).
Plan Big Execute Small
Customers get much closer to a company that assumes an active stance on the local and regional level.
In the community, the company:
provides employment
provides tax revenues
Increases regional welfare
positively impacts other businesses e.g. parts suppliers etc.
Embrace cultural differences, don’t fight them. In Valenciennes, France Toyota assembles Yaris on a 35 hour a week basis as per French labour customs.
Over 300,000 employees worldwide, only 70,000 in Japan. To sustain growth each region need to be self-reliant. Toyota has set up a teaching institute in Japan for its world-wide senior employees to help foster regional and local development into the future. It is effectively a nerve centre for global understanding.
13. Manage Like You Have No Power
“If employees just did what they were told to, you would continually find defects at the end of the line. We want employees to go beyond what they are told and be creative, building quality into the processes.”
Mitsuo Kinoshita - executive vice president TMC
Manage Like You Have No Power
A great leader must be more of a facilitator than a dictator. Managing by issuing directives vertically to lower levels of management results in inefficiencies. Managers should empower team members to think and act on their own.
Distribute Authority Widely
Managers and executives are encouraged to distinguish between Authority and Responsibility. While maintaining the authority they delegate the responsibility to their direct supervisors and ask for recommendations rather than requests.
This distributes the responsibility laterally and makes those involved thoroughly check their facts or else…
Process of decision -taking is based on fact finding and not opinions of one or more people.
All factual pros and cons are revealed in an analysis.
At all levels, people are challenged to find answers.
Manage Like You Have No Power
An increasingly horizontal organisational structure means the word “we” is used more than the Word “I” in discussions.
Ultimately each employee is called to defend his or her ideas, work through other people and convince the person with formal authority that the ideas are correct.
Implication : Responsibility falls one level below Authority.
Effectively: Authority is being distributed to achieve a common goal.
In the office managers work in open offices with employees resulting in:
Increased accessibility to seniors
Encourages team work
Enhances fact finding
Reduces barriers to productivity and efficiency.
Manage Like You Have No Power
Strive for Lean, Avoid Bureaucracy
Typical pyramidal-style hierarchy is wasteful, it:
creates bureaucracy
gives rise to impersonal decisions
confines employees to one type of specialization preventing flexibility to reach goals and objectives.
Result : A correctly conceived idea at the top may not be correctly executed at lower levels; = lack of Control
Toyota has multiple organisations within one territory managed separately but all report to HQ Europe.
TMUK -Vehicle Assembly
TGB - Vehicle Marketing
TME - Toyota Marketing Europe.
14. Carefully Cultivate and Support Employees
“We begin to create the culture in the hiring process”
Gary Convis - senior executive advisor, Toyota
Carefully Cultivate and Support Employees
Prospective employees are hired on a ‘best-fit’ basis rather than on the basis of their CV.
New recruits are given an extensive training and familiarisation exercise for one year in various departments - a complex apprenticeship in continuous improvement and respect for people.
They are then placed with an experienced mentor for 3 years.
Reinforce Culture Through Deep and Thorough Teaching
Philosophy of respect dictates that all employees are called upon to help and share their knowledge. That is why the president (Watanabe) is also a lecturer at the Toyota Institute.
Teaching culture is adapted to meet the requirements in deferring territories.
In the USA, key professionals are trained at the University of Toyota, California.
Carefully Cultivate and Support Employees
Employees are appraised on their teaching and mentoring abilities.
To be successful a prospective Toyota employee will have to show traits such as:
Honesty & integrity
Willingness to learn
Willingness to be critiqued
Seek Mutual Benefit
Following its only dispute with labour unions in 1950, Toyota had initiated a program of trust and negotiation with social partners, particularly unions.
Negotiations are held annually in a spirit of collaboration to determine wages and benefits for each year to mutual satisfaction, taking into account both management and employee needs.
This principle is also applied to parts suppliers, jointly conducting research and cost analysis to the benefit of both.
Carefully Cultivate and Support Employees
The foundation for Toyota relationships
Establish trust
Mutually improve productivity and share the benefits
Mutually contribute to the betterment of society and the economy.
15. The Power of Paranoia
“I feel that being successful may make us arrogant and want to stay in a comfort zone. That is the threat ”
Katsuaki Watanabe - president TMC
The Power of Paranoia
Reaching the Top
When an organisation reached the pinnacle, there is only one way left to go - down. The most that can be achieved is to maintain that position and in order to do so it must:
Plan for the worst and hope for the best.
Fear that what is being done today is not good enough for tomorrow.
Worry about weaknesses in quality and efficiency.
Never stop worrying about the details.
Be pro-active and try to foresee future problems. e.g. wages sustainability.
Bottom line = running scared yields better results than running complacent.
The Power of Paranoia
Don’t Believe the Headlines
Positive news, reports of milestones reached etc..all lead to a false sense of security. They wrongly propose that reaching that target has been easy. In fact they only serve to make the challenge more difficult.
The surge in publicity in recent years will cause competitors to become more aggressive.
Conclusions
“Our goal is to …make life easier”
Jim Press - former president TMNA
Final thoughts
In less than 60 years, Toyota has evolved into one of the largest and most important companies. It has achieved this because it has remained grounded in:
Humility
Listening to the customer without arrogance
Positively contributing to the global community.
Such an organisation is faced with a massive corporate social responsibility and opportunity.
Work for the Right Reasons
Size is not a corporate objective.
Sales volume and market share are not so important.
Profit is an objective
Profit is essential for sustainability.
Profit is the result of doing the right things daily.
Profit enables the vision for the future - (R&D - Aim Zero Emissions)
Final thoughts
Opportunities abound.
In the US alone 64 million young people will receive their driving licence in the next 10 years.
What about emerging markert such as China, India, Russia etc?
If you get to the top of the mountain, you keep climbing.
As long as Toyota continues to focus on the heart of the customer, remaining true to its mission of working to improve society, it can keep going.
Michael Debono Ltd
Thank you
Popularity: 15% [?]
Listen to this podcast
Print This Post
Entries (RSS)
[...] [...]