Organizations and Markets

Toyota at the Crossroads

20 February 2007 at 12:06 am spostrel 3 comments

| Steven Postrel |

The recent NYT article (not the Sunday Magazine story but an earlier business sectiion piece by Martin Fackler) describing Toyota’s struggle to transmit its methods and culture to large numbers of foreign workers, in the face of unprecedented recalls and quality problems, provokes a number of thoughts about the company’s past successes and its current problems.

1. The acculturation issue is an inevitable execution task given Toyota’s chosen strategy of going for increased market share, which means adding lots of capacity all over the world. Only about a third of Toyota’s employees are now in Japan.

In principle, the problem is not that different from a restaurant chain trying to replicate its concept at sites all over a single country. If that concept is different and superior, which is why it makes sense to extend it, it also will be impossible to find employees “off the shelf” who can make it work. (This applies regardless of whether a national boundary is involved, though of course differences in values and norms across countries can complicate the process.) Careful recruitment, training, and socialization into the system will be needed at the new sites, but if all the people who already know the system are busy producing output, a strain is created.

Toyota is setting up special training institutes and assigning teachers full-time to this acculturation process. It will be interesting to see if this explicit classroom approach can work as effectively as the older implicit socialization methods.

2. Toyota always avoided writing down its principles and methods. One suspects this was done as much to inhibit imitation as to fit alleged Japanese proclivities for tacit transmission of group knowledge. But the times they are changin’: “It was not until 2001 that the company first set the Toyota Way down in writing, at the orders of Fujio Cho, the president at the time who helped orchestrate Toyota’s rapid overseas growth.” The tension between maintaining secrecy to inhibit imitation versus articulating knowledge to faciltiate replication is being resolved in favor of the latter. Will this endanger Toyota’s productivity edge over time?

3. One of the hardest aspects of the Toyota system for Americans and others to get used to is the emphasis on visibility and accountability and openness. Individual worker progress toward targets is posted on charts hung on the wall for all to see. The article quotes an American manager: “For Americans and anyone, it can be a shock to the system to be actually expected to make problems visible. Other corporate environments tend to hide problems from bosses.”

It’s hard not to think about shame versus guilt cultures when you read stuff like this…but then I remember a talk in 1990 I heard from Therese Flaherty, who had interviewed people at DRAM fabs all over the world. One Japanese engineer who had worked at both American and Japanese fabs said the reason for the latter’s superior performance was (and I am loosely quoting from memory her own loose quote from memory) “Culture. In America, everybody is worried about saving face. In Japan, we attack the problem logically without worrying about people’s feelings.” A good lesson in not overapplying national stereotypes to organizational contexts.

4. We have all kinds of nifty economic models that take asymmetric information for granted, as an exogenous assumption, and then work out optimal incentive schemes given those information conditions. Toyota’s approach to such problems, I have concluded after reading many accounts, including some by Paul Adler and John Paul MacDuffie, is to deny this exogeneity. Instead of worrying about the nuances of contingent payment schedules, they blow up the barriers that make information asymmetric. To call this “monitoring” is to understate the thoroughgoing commitment to information symmetry within the firm and between the firm and its suppliers.

A similar thing occurred in the operations management area. There is a ton of sophisticated modeling work describing optimal inventory levels as a function of parameters like lot size, line changeover times, defect rates, and so on. Toyota’s approach was not to optimize these tradeoffs–instead, they attacked the parameters, treating as endogenous that which American managers and academics tended to take as given and immutable. So we got single-minute exchange of dies, progressive buffer stock reduction to expose and destroy quality problems at the source, mixed-model production, and the rest of the now well-known bag of lean manufacturing tricks.

Are there any other theories or models where we have been accepting as exogenous parameters things that focused management effort could improve?

Entry filed under: Business/Economic History, Former Guest Bloggers, Management Theory, Recommended Reading, Strategic Management.