Recently a customer passed along to me an article from the business press which he described as “mind-numbing.” He was referring to an announcement by Fujio Cho that Toyota would post a profit for 2004 of $11 billion! This number was especially dramatic given recent laments by both Ford and General Motors of losses for the first quarter of 2005 each exceeding one billion dollars. Unfortunately, by now the bad news from domestic manufacturers has become so commonplace, it hardly seems like news. When GM announced in June that it would lay off an additional 25,000 employees this year it was pretty much viewed as “more of the same.” But when Toyota suggested that it might raise prices on its cars to help increase Ford and GM sales, that seemed strange indeed. In this topsy-turvy move Toyota sought to protect itself from a “giant killer” image, fearing backlash from American buyers. How, we ponder, can one manufacturer consistently do so well in the same market that is sinking others? There is no simple answer to that question, but there are several misconceptions which illuminate “the people side of Lean.”
Not too many years ago there was the un-level playing field argument (much as we hear today, except replacing all references to “Japanese” with “Chinese”.) There was a claim that cheap labor there was stealing American jobs. Less well publicized in those early years of “foreign cars” was the fact that in the 1970’s Ford produced six times more cars per factory worker than Toyota! In any case, thirty-five years later we live a time of multi-national corporations. We’d like to “Buy American”, but it’s often hard to know. If you drive a Camry, you are buying American, a Ford – maybe not, at least not the U.S. part of America. Toyota employs, either directly or indirectly, sixty-seven thousand U.S. workers to design and build cars, vans and trucks. And the number of new jobs is growing steadily there. So while the money-losers down-size and outsource “because you can’t make money manufacturing in the U.S.”, the profit-leader is adding jobs.
A second belief, still prevalently held today, is in the communalism of Japanese culture and the subordination of individual needs to those of the group. The negative and misleading implication: Japanese act in a regimented, disciplined fashion, like so many ants building an ant hill. We hear that such a culture could not be imposed on the creativity and individualism of American workers. A corollary to this argument is that the “entitlement” American workers feel gives foreign competitors an economic advantage. If entitlement means medical coverage and a wage sufficient to support a family, then surely it poses a big problem for many manufacturers. Benefits derived from a leading manufacturing economy cannot be supported if the leadership is relinquished. As for creativity, Toyota logs fifty improvement ideas per employee every year! How is that possible if work is as regimented as we are led to believe?
This brings me back to the news article that described Toyota’s big profits. While the headline was about profits, further into the body of the article the journalist referred to “Toyota’s big risk” as it strives to build a “world truck.” The strategy is this: Design and build an economical vehicle that will operate well in many climes, and then open parts plants in countries world-wide to generate sufficient income in those areas to support a truck purchase. (Sounds suspiciously like Henry Ford’s plans for the Model T.) The “risk”, as the journalist related is that non-Japanese workers will not be able to adapt to Toyota’s system. So, it’s no longer just American workers who can’t rise to the challenge; it’s apparently any workers that are not Japanese!
Ergo, it’s the workers that are the problem. This was implicit in the journalist’s evaluation – and most unfortunately ingrained in the psyche of most American management. “Low level” jobs are deemed to be outsource-able and exportable. Persons in those jobs are expendable – a variable expense. Expert transition managers log thousands of frequent flyer miles finding lower wage locales for these jobs. And when their job is complete, they are also expendable. This inexorable practice is like a black hole, sucking up corporations that were once pillars of the community and leaving only a shell of marketing and warehousing stateside.
But what does this situation have to do with the people side of Lean?
Everything! The philosophy behind the Toyota Production System teaches that “employees are the most important resource.” More specifically, there is an abiding belief that every employee wants to do the right thing because that is in our nature as humans. Contrast that with underlying beliefs at Toyota’s competitors. At the center of Toyota’s production system is what they refer to as “human development” — ongoing investment in the most valuable resource to capture the fullest potential from every individual. Employees are not a variable expense, but singly and together the keystone to Toyota’s profitability and superior products. Why does Toyota get so many improvement ideas from its employees? Because they ask, because they value them. All employees are viewed as experts. All employees have the power to stop the line when quality is in question. To be sure, Toyota is not a perfect company – they will be the first to acknowledge this. But the philosophical direction they have chosen, “true North”, consistently yields outstanding results with any workers in any location. Rather than outsourcing jobs, they have imported their production system. And at the center of that system is “the people side of Lean.”
Meanwhile, their competition focuses only on the techniques of Lean – kanban, SMED, standardized work and other supposed silver bullets – attempting to layer these over a seriously deficient management system. In American manufacturing, McGregor’s Theory X is still king. In too many cases workers are dismissed as a necessary evil; a class of people who must be madeadopt Lean. Consequently, kaizen becomes something that is done to workers rather than by them. Elite mezzanine squads of lean implementers rearrange the furniture without engaging the “most valuable resource.” A production employee recently summed up this kind of lean implementation: “Same old sh-t.” Small wonder that companies who focus only the mechanics of lean derive poor results.
Roger Milliken, chairman of one of largest privately held manufacturers, a 1989 Baldrige Prize recipient, remarked many years ago, “The three biggest obstacles to continuous improvement are top management, middle management and first-line supervision.” Milliken understood that if change for the better is to occur, we must look first to our leadership. If they don’t understand the meaning of “true North”, how can any employee be expected take a chance at improvement?
When Shigeo Shingo defined the “7 Wastes” of the Toyota Production System he opened our eyes to where dramatic improvement can be found: Rather than looking primarily at the “value-adding” operations that comprise only 10% of the elapsed time to provide a product or service., we should look first at the things that impede the work and make up 90% of that elapsed time. Revolutionary. But Dr. Shingo also noted an “eighth waste” which he deemed more important than all of the others: The waste of human creativity.
This most valuable resource remains untapped in many lean implementations and therefore dooms them to failure. To a journalist from the business press on the outside looking in, this may appear to be an innate deficiency in workers. This viewpoint derives from Theory X lenses. It’s time now for more Theory Y. When Taiichi Ohno, Vice President of Production at Toyota first put forth the philosophy the employees are most valuable resource, he recognized what many managers still struggle with: that people innately want to do the right thing. We don’t need to make them; we need to let them. That’s the people side of Lean.