TOYOTA PRODUCTION SYSTEM
The fact that Toyota has become the largest company in the world thanks to its production system, the Toyota Production System (TPS), is well known. Its manufacturing approach enables the production of the best vehicles at a low cost and continuously improves them through technological innovations. Toyota competitors such as Daimler Chrysler, Ford, Honda, Nissan have developed their own TPS-like production systems. But it wasn’t just the auto industry.
Medical institutions, postal services and logistics companies, financial institutions have adopted the concept, tools and principles to improve efficiency. Experts and consultants extol the virtues of TPS so often and convincingly that its fundamental principles are rightly considered fundamental and beyond doubt. However, very often information about TPS is presented one-sidedly, in the form of a helpful half-truth for managers. Half-truths are dangerous.
We have been studying the Toyota phenomenon for six years, having visited 11 countries at numerous meetings, and analyzed the company’s internal documents. We conducted about 220 interviews with former and current Toyota employees at all levels, from factory floor workers to President Katsuaki Watanabe. Our research shows that the TPS concept and tools are necessary but not sufficient to explain Toyota’s phenomenal success.
Simply put, Japanese TPS is hard skills (technological skills) that allow you to constantly improve production methods. But there are also soft skills (behavioral skills) related to corporate culture. We are convinced that this company develops and succeeds due to internal contradictions and paradoxes in many organizational aspects of its activities. Toyota employees work in an environment of inexhaustible problems and are forced to look for fresh ideas. That’s why Toyota is evolving. Technological and behavioral skills, like two wheels on the same shaft, move the company forward.
Toyota believes that efficient processes and technology alone cannot guarantee success. But don’t jump to conclusions; no company practices Taylorism (principles of scientific work organization) better than Toyota! The peculiarity is that Toyota considers any employee not just as a pair of hands, but first of all as a knowledge worker, accumulating advanced experience and wisdom. Therefore, Toyota invests heavily in developing people and creating career opportunities. She collects ideas from everyone and everywhere: from the shop floor to the boardroom.
In addition, research on human cognition shows that when people are confronted with alternative views, they understand more about different aspects of problems and come up with better solutions. In this way, Toyota deliberately indulges in the expression of conflicting views within the organization and challenges employees to find solutions by bridging difference rather than compromise. This approach gives rise to innovative ideas that Toyota successfully implements, step by step or jerkily ahead of the competition.
Next, we describe some of the key features that Toyota encourages and describe six principles: three of which encourage experimentation and development, and the other three to preserve its values and principles.
CULTURE FULL OF CONTRADICTIONS
From the outside, Toyota’s success looks incomprehensible, because the company does not have the pronounced signs of a successful enterprise. She resembles an archaic and “stagnant” giant for several reasons. From 1995 to 2006, dividends amounted to only 20% of its profits. For example, in 2006 they accounted for 21.3% of profits, in line with those of smaller and more profitable competitors such as Nissan (22.9%) and Hyundai-Kya (17.4%), and significantly less than Daimler Chrysler (47.5%) in the same year. At the same time, Toyota replenished its working capital by $ 20 billion, after which some analysts began to call it Toyota Bank.
Most Toyota executives are Japanese, while top managers in successful Western companies are more diverse in origin. In 2005, the “tops” of Toyota earned only a tenth more than the top managers at Ford. Their compensation was lower than that of
Toyota is developing slowly, but in leaps and bounds
For example, Toyota began production in the US gradually. But the first own plant was opened only four years later in Kentucky.
In the early 1950s, the company was on the verge of bankruptcy, but over the following years, it showed a steady increase in sales and market share. Despite this enviable stability, senior management is constantly broadcasting internal slogans like “Never stop there” and “Look for a better path.” Former Chairman Hiroshi Okuda’s favorite saying is “Reform your business even when it’s good,” and Wanatabe likes to say that “no change is bad.”
Toyota’s processes are optimal, but it is “wasteful” in terms of employee time
You will be surprised to see how many people attend general meetings at Toyota, although most of them do not participate in the discussions. The company attracts far more employees to local offices than competitors do. Also, Toyota encourages local language proficiency among coordinators, a position that Carlos Josn abolished when he was CEO at Nissan, to help overcome possible language barriers in communication between headquarters and local offices around the world.
Toyota is modest but spares no expense in key areas
Only Wal-Mart can match the stinginess of Toyota. Employees often work in one large room without partitions between places due to the high cost of space. For example, from 1990 to 2008, the company invested $22 billion in manufacturing centers and ancillary facilities in the US and Europe, and in recent years has spent $170 million on Formula 1 participation.
Toyota requires transparent communications but builds complex social bonds
It is an unwritten rule that employees must maintain conciseness in their communication with each other. When making reports, they succinctly and clearly formulate information, goals, research results, plans and expected results on one sheet of paper. At the same time, Toyota builds complex social relationships because it wants “everyone to know everything.” The company develops horizontal connections between people united functionally or geographically, creating groups according to specialties and age; it strongly encourages vertical relationships between the layers of the hierarchy in the form of training and mentoring. Toyota welcomes informal connections by inviting employees to create local sports and hobby clubs.
Toyota has strict subordination of positions, but everyone has a chance
The expression of conflicting opinions in order to identify and solve problems, in spite of blind obedience to the boss, is absolutely acceptable employee behavior. Katsuaki Watanabe recounted how he struggled with his superiors as he climbed his career ladder, and often repeated, “We chose a friendly fight.” We were surprised to hear criticism of the company and senior management in interviews with employees. But they didn’t seem to care at all, offering constructive criticism.