Chapter 1 - An Introduction to Managerial Effectiveness

© Durward K. Sobek and Art Smalley, All Rights Reserved

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Toyota Motor Corporation is arguably the most studied company of the modern era.  More than a dozen books have been written about the company, its management system and philosophy, and its approaches to various business and operational problems.  One of the latest books, The Toyota Way by Jeffrey Liker, became an immediate best seller, indicating the instant draw the Toyota name has among the business community. A search on Business Source Premier turned up over 3,000 articles published over a ten year period with “Toyota” in the title.  And this does not include the hundreds of volumes and countless articles on lean manufacturing or various aspects thereof (e.g., 5S, kanban, poka yoke) that are largely based on tools and practices developed by Toyota.

Such attention is well deserved.  As of the writing of this book, Toyota had just surpassed Ford Motor Company in number of vehicles sold annually in the United States, having already beat out Ford in global sales several years prior; and it is poised to topple General Motors to become the largest auto manufacturer in the world.  In 2005, Toyota produced one vehicle approximately every four seconds somewhere in the world, while at the same time, setting the benchmark for product quality.  Toyota perennially wins national and international acclaim in all of the major automobile quality ratings.  For instance, Toyota’s flagship LEXUS nameplate has earned the top spot in JD Power’s Initial Quality Survey for over 10 years running.  On top of all this, Toyota is profitable; in fact, very profitable.  Toyota set record profits 2003, 2004, and 2005 earning over $10 billion annually even while their North American competitors saw significant drops in earnings and losses. 

But other companies have also been successful.  What makes Toyota intriguing is that its success has been sustained over an extremely long time period by most business standards.  From the ashes of World War II, Toyota initially struggled to maintain solvency, but rose over the following decades to become Japan’s leading manufacturer.  As it grew, Toyota began seeking markets outside of Japan, and by the early 1980’s Toyota was well established in the US market,  Toyota has grown each year for the last 50 years, and has not experienced a loss in net earnings since the early 1950’s.  This is standout performance in an industry characterized by cyclical ups and downs.

Toyota is also intriguing because its business and management philosophy is unique, its approach to manufacturing exceptional and counterintuitive, its collective understanding of operational dynamics breathtakingly insightful.  Toyota is perhaps most well-known for its production system, first documented in a detailed 80-page handbook published internally in Japanese in 1973.  The first English publication on it appeared in 1977 by Sugimori, et al., as a high level summary.  However, it wasn’t until the early 1990’s that the uniqueness of Toyota’s system became well-known with the publication of the book The Machine that Changed the World.  In it, the MIT professors detail the strikingly robust, flexible, and efficient systems they observed in Japan, and dubbed it “lean manufacturing” for their ability to design, produce, and deliver higher quality products in volume with a fraction of the resources of their North American and European competitors.  The manufacturing community learned later that the model of lean manufacturing was the Toyota Production System (TPS). 

Toyota has been remarkably open in sharing its system with others, even establishing the Toyota Supplier Support Center to provide consulting assistance to US companies wanting to operate more efficiently, at no cost to the client.  More recently, we’ve come to understand that Toyota’s uniqueness extends into many other areas as well, including product development and logistics.  Cottage industries are sprouting in many arenas to provide assistance and training in lean tools and concepts, and putting them into practice.  Lean applications that were once targeted primarily at high-volume manufacturing plants are rapidly finding their way into other sectors of the economy, including engineering, financial services, transportation and logistics, healthcare, food and beverage services, and government (including military operations).  Toyota’s impact is being felt well beyond the automotive industry.

PDCA: Heart of the Toyota Way

The lean model is dramatically altering the face of manufacturing in the developed world.  Inventories are dropping, lead times are shortening, quality is holding steady or increasing, and prices are falling.  We expect this trend will follow in other sectors, just as it has in manufacturing.  Yet, with all that we know, with all that has been published, with all the resources that are available, no American companies to these authors’ knowledge have reached Toyota’s level of efficiency and effectiveness.  In fact, Toyota is building factories in the U.S. even as most of U.S. manufacturing is trying to move operations overseas or outsource them altogether.  Why don’t we see more companies emulating Toyota’s success?

While there may be many explanations, perhaps the most crucial one is that most (perhaps all?) of us do not understand, or if we understand do not appreciate, what is at the heart of the Toyota business, management, and manufacturing approach.  We tend to see the intricate set of tools as the system.  But while they are important to the system as currently enacted, they are at the surface, not the heart.  In fact, Taiichi Ohno, the father of the modern Toyota production system, said that the tools are just countermeasures to business problems that Toyota has faced, and that they will only be used until better countermeasures are found.  In other words, the interconnected web of tools and practices we know as lean manufacturing are the outcomes of a deeper set of processes.  These deeper processes, we argue, are at the heart of Toyota’s system....