The Toyota Way

Introduction

Continuous improvement, often called kaizen, defines Toyota’s basic approach to doing business. Challenge everything. More important than the actual improvements that individuals contribute, the true value of continuous improvement is in creating an atmosphere of continuous learning and an environment that not only accepts, but actually embraces change.

In other words, the small gains compound over time. That is everything.

The party line among Detroit auto executives was that the cause was the “Japanese invasion.” Japan, Inc. had banded together with industry and government colluding to set up trade barriers to prevent American cars from being sold in Japan and artificially lowering prices of Japanese cars in the United States. Of course, in the minds of U.S. companies, as long as the root cause was unfair business practices, there was no need to seriously change the way they built cars. Instead, political channels would right the wrongs.

This defensiveness is always the first instinct in underperformers. It’s always someone or something else’s fault.

The fundamental insight I have from my studies of Toyota is that its success derives from balancing the role of people in an organizational culture that expects and values their continuous improvements, with a technical system focused on high-value-added “flow.”

Every organization needs to maximize flow state.

At that time in the late ’80s and early ’90s, the “learning trade imbalance” was huge—with most of the learning going from the U.S. to Japan and little coming back. There were many reasons for this, but one was that the U.S. did not want to listen. The phenomenal success of companies like Toyota woke us up, and Toyota has contributed greatly to bringing more balance into the exchange of learning. Toyota has been remarkably open in sharing its source of competitive advantage with the rest of the world. A milestone was Eiji Toyoda’s decision in 1982 when, as chairman, he, along with Shoichiro Toyoda, President, approved the agreement with GM to create NUMMI, a joint auto manufacturing venture specifically intended to teach the “Toyota Way” to GM. That meant sharing Toyota’s crown jewel, the famous Toyota Production System, with its principal global competitor.

It’s funny how similar this is to China today. Again, the US does not want to listen.

Toyota designed autos faster, with more reliability, yet at a competitive cost, even when paying the relatively high wages of Japanese workers. Equally impressive was that every time Toyota showed an apparent weakness and seemed vulnerable to the competition, Toyota miraculously fixed the problem and came back even stronger.

[sic]

Its net profit margin is 8.3 times higher than the industry average.

Incredibly impressive.

Toyota has the fastest product development process in the world. New cars and trucks take 12 months or less to design, while competitors typically require two to three years.

Remarkable.

In 2003 Toyota recalled 79% fewer vehicles in the U.S. than Ford and 92% fewer than Chrysler. According to a 2003 study in Consumer Reports, one of the most widely read magazines for auto-buying customers, 15 of the top 38 most reliable models from any manufacturer over the last seven years were made by Toyota/Lexus. No other manufacturer comes close. GM, Mercedes, and BMW have no cars on this list. Not a single Toyota is on the dreaded “vehicles to avoid” list.

Growing up, nobody wanted to buy American cars. Glad to see the data behind that.

The incredible consistency of Toyota’s performance is a direct result of operational excellence. Toyota has turned operational excellence into a strategic weapon.

Incredible competitive advantage when you can be an execution machine.

All we are doing is looking at the time line from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes.

These small improvements really add up over time.

Origins

Toyota’s market in post-war Japan was small. Toyota also had to make a variety of vehicles on the same assembly line to satisfy its customers. Thus, the key to their operations was flexibility. This helped Toyota make a critical discovery: when you make lead times short and focus on keeping production lines flexible, you actually get higher quality, better customer responsiveness, better productivity, and better utilization of equipment and space. While Ford’s traditional mass production looks good when you measure the cost per piece on an individual machine, what customers want is a much greater variety of choices than traditional manufacturing can offer cost-effectively. Toyota’s focus in the 1940s and ’50s on eliminating wasted time and material from every step of the production process—from raw material to finished goods—was designed to address the same conditions most companies face today: the need for fast, flexible processes that give customers what they want, when they want it, at the highest quality and affordable cost.

I really want to read about Henry Ford next. It’s amazing how they localized the assembly line to the conditions in Japan. Real first principles thinking.

It is best to selectively use information technology and often better to use manual processes even when automation is available and would seem to justify its cost in reducing your headcount. People are the most flexible resource you have. If you have not efficiently worked out the manual process, it will not be clear where you need automation to support the process.

This is very counter-intuitive, but it’s similar to Elon’s famous algorithm - automate is the last step.

It is interesting that labor advocates and humanists for years have criticized assembly line work as being oppressive and menial labor, robbing workers of their mental faculties. Yet when Toyota sets up assembly lines, it selects only the best and brightest workers, and challenges them to grow in their jobs by constantly solving problems.

Contrarian opinion.

This was an age when inventors had to do everything themselves. There were no large R&D departments to delegate work to. When Toyoda first developed the power loom, there was no available power to run the loom, so he turned his attention to the problem of generating power. Steam engines were the most common source of power, so he bought a used steam engine and experimented with running the looms from this source. He figured out how to make this work by trial and error and getting his hands dirty—an approach that would become part of the foundation of the Toyota Way, genchi genbutsu.

This was an era where real scientists would also make all of their own tools. These days it’s too many abstractions on top of abstractions. I wonder if with AI we will return to a world where you have a large part in constructing everything you use.

Toyoda’s endless tinkering and inventing eventually resulted in sophisticated automatic power looms that became “as famous as Mikimoto pearls and Suzuki violins”

I didn’t realize that the company started with these famous looms!

[T]his philosophy, and ultimately the Toyota Way, was significantly influenced by his reading of a book first published in England in 1859 by Samuel Smiles entitled Self-Help (Smiles, 2002). It preaches the virtues of industry, thrift, and self-improvement, illustrated with stories of great inventors like James Watt, who helped develop the steam engine. The book so inspired Sakichi Toyoda that a copy of it is on display under glass in a museum set up at his birth site.

Incredible! I really want to go and see this in Japan.

When Sakichi Toyoda tasked his son with building the car business, it was not to increase the family fortune. He could just as well have handed over to him the family loom business. Sakichi Toyoda was undoubtedly aware that the world was changing and power looms would become yesterday’s technology while automobiles were tomorrow’s technology. But more than this, he had put his mark on the industrial world through loom making and wanted his son to have his opportunity to contribute to the world. He explained to Kiichiro: Everyone should tackle some great project at least once in their life. I devoted most of my life to inventing new kinds of looms. Now it is your turn. You should make an effort to complete something that will benefit society.

This hit me so deeply I dedicated my entire offsite speech to it.

[R]ampant inflation made money worthless and getting paid by customers was very difficult. Cash flow became so horrendous that at one point in 1948 Toyota’s debt was eight times its total capital value…

[sic]

Finally, even the pay cuts were not enough. This forced him to ask for 1,600 workers to “retire” voluntarily. This led to work stoppages and public demonstrations by workers, which at the time were becoming commonplace across Japan.

[sic]

Kiichiro Toyoda took a different approach. He accepted responsibility for the failing of the automobile company and resigned as president, even though in reality the problems were well beyond his or anyone else’s control. His personal sacrifice helped to quell worker dissatisfaction. More workers voluntarily left the company and labor peace was restored. However, his tremendous personal sacrifice had a more profound impact on the history of Toyota. Everyone in Toyota knew what he did and why. The philosophy of Toyota to this day is to think beyond individual concerns to the long-term good of the company, as well as to take responsibility for problems.

This is a really honorable way to run the business, and that philosophy continues to this day.

Toyoda family members grew up with similar philosophies. They all learned to get their hands dirty, learned the spirit of innovation, and understood the values of the company in contributing to society. Moreover, they all had the vision of creating a special company with a long-term future.

Very Dyson-esque.

This was David trying to take on Goliath. Ford’s mass production system was designed to make huge quantities of a limited number of models. This is why all Model T’s were originally black. In contrast, Toyota needed to churn out low volumes of different models using the same assembly line, because consumer demand in their auto market was too low to support dedicated assembly lines for one vehicle. Ford had tons of cash and a large U.S. and international market. Toyota had no cash and operated in a small country. With few resources and capital, Toyota needed to turn cash around quickly (from receiving the order to getting paid). Ford had a complete supply system, Toyota did not. Toyota didn’t have the luxury of taking cover under high volume and economies of scale afforded by Ford’s mass production system. It needed to adapt Ford’s manufacturing process to achieve simultaneously high quality, low cost, short lead times, and flexibility.

Again, first principles thinking. Don’t just blindly copy Ford when you don’t have Ford’s resources. Think through what Ford was trying to achieve versus what you are, and apply only what makes sense.

When Eiji Toyoda and his managers took their 12-week study tour of U.S plants in 1950, they were expecting to be dazzled by their manufacturing progress. Instead they were surprised that the development of mass production techniques hadn’t changed much since the 1930s.

Complacency!

Ford had broken the tradition of craft production by devising a new mass production paradigm to fill the needs of the early 20th century. A key enabler of mass production’s success was the development of precision machine tools and interchangeable parts.

Yup, technological changes is what unleashed this opportunity.

Ford also preached the importance of creating continuous material flow throughout the manufacturing process, standardizing processes, and eliminating waste. But while he preached it, his company didn’t always practice it. His company turned out millions of black Model T’s and later Model A’s using wasteful batch production methods that built up huge banks of work-in-process inventory throughout the value chain, pushing product onto the next stage of production.

This is fascinating because, by American standards, Ford was known to be extremely frugal and always looking for ways to make use of waste products! That’s why he invented the briquette.

Toyota did not have the luxury of creating waste, it lacked warehouse and factory space and money, and it didn’t produce large volumes of just one type of vehicle. But it determined it could use Ford’s original idea of continuous material flow (as illustrated by the assembly line) to develop a system of one-piece flow that flexibly changed according to customer demand and was efficient at the same time.

Imagining how much more efficient Toyota had to be to call Ford wasteful. Or maybe they mean that by the 1950s, after Ford himself had left, the company had become wasteful? It’s hard to say.

Each person or step in a production line or business process was to be treated as a “customer” and to be supplied with exactly what was needed, at the exact time needed. This was the origin of Deming’s principle, “the next process is the customer.”

Toyota is extremely against stockpiling excess. Whenever possible, everything should be done just in time.

Kaizen teaches individuals skills for working effectively in small groups, solving problems, documenting and improving processes, collecting and analyzing data, and self-managing within a peer group. It pushes the decision making (or proposal making) down to the workers and requires open discussion and a group consensus before implementing any decisions. Kaizen is a total philosophy that strives for perfection and sustains TPS on a daily basis.

Always a believer in the power of small groups.

[T]he power of TPS was mostly unknown outside of Toyota and its affiliated suppliers until the first oil shock of 1973 that sent the world into a global recession, with Japan among the hardest hit. Japanese industry went into a tailspin and the name of the game was survival. But the Japanese government began to notice when Toyota went into the red for less time than other companies and came back to profitability faster.

Pretty remarkable that even inside Japan people didn’t know about it. The Toyota family has always been quite secretive.

Ohno considered the fundamental waste to be overproduction, since it causes most of the other wastes. Producing more than the customer wants by any operation in the manufacturing process necessarily leads to a build-up of inventory somewhere downstream: the material is just sitting around waiting to be processed in the next operation.

The whole philosophy is around this just in time, zero-waste, absolute minimum necessary manufacturing ideal.

Ironically, the requirement for working with little inventory and stopping production when there is a problem causes instability and a sense of urgency among workers. In mass production, when a machine goes down, there is no sense of urgency: the maintenance department is scheduled to fix it while inventory keeps the operations running. By contrast, in lean production, when an operator shuts down equipment to fix a problem, other operations will soon stop producing, creating a crisis. So there is always a sense of urgency for everyone in production to fix problems together to get the equipment up and running.

Fail loudly - every small hiccup is an emergency, and thus in the long run all the hiccups are quickly ironed away.

The Toyota Way means more dependence on people, not less. It is a culture, even more than a set of efficiency and improvement techniques. You depend upon the workers to reduce inventory, identify hidden problems, and fix them. The workers have a sense of urgency, purpose, and teamwork because if they don’t fix it there will be an inventory outage.

Always get the best people. They’ll do remarkable things.

Build a culture of stopping to fix problems, to get quality right the first time.

The whole purpose behind this is quality. If you get things right the first time, you don’t have to re-do it. Redoing often is multiple times as expensive as simply doing it right the first time.

Use only reliable, thoroughly tested technology that serves your people and processes. Use technology to support people, not to replace people. Often it is best to work out a process manually before adding technology to support the process.

Pretty much a variant of Elon’s algorithm - automate last.

Grow leaders from within, rather than buying them from outside the organization.

I wholeheartedly agree with this.

Lexus

Even if the target seems so high as to be unachievable at first glance, if you explain the necessity to all the people involved and insist upon it, everyone will become enthusiastic in the spirit of challenge, will work together, and achieve it. —Ichiro Suzuki, chief engineer of the first Lexus

When designing Lexus for the first time, it was viewed as an impossible task. The deadlines were too rushed, the specs were too premium, everything had just never been done before at Toyota. But as you know, I am a huge believer in doing the impossible.

[M]ost of what goes on in Toyota’s vehicle centers is routine product development making incremental change from one model to the next. But the beauty of the Toyota Way is that it allows Toyota to periodically break from this “conservative” mold and innovatively develop a new vehicle with a new developmental approach. These are defining moments for Toyota.

This is what allows Toyota to not fall into the innovator’s dilemma trap.

Togo was a successful Toyota executive in charge of Toyota Motor Sales, USA, in Southern California. His friends and associates were also well-to-do executives. But few would consider buying a Toyota. Mercedes and BMW were more their style. This bothered Togo. He was a fighter and not willing to accept being second-class. Making high-quality, fuel-efficient, and economical cars was fine, but he saw no reason why Toyota could not also make luxury vehicles competing with the best in the world. “Maybe what we need is a luxurious car that would create a new image, a car of high quality, perhaps even up-market of the Mercedes-Benz.”

At first he faced resistance. At Toyota this was not unusual. Much of Toyota’s success derives from incremental improvements year in and year out—part of that conservative mindset.

Even the best ideas face resistance!

They were based on the assumption that the Lexus could do it all. “So when I showed this to the engineers at Toyota they all laughed at me. They said it was impossible,” explained Suzuki.

The power of impossible. I’m going to keep saying it until I’m blue in the face.

Suzuki presented a number of strict requirements to the engine production engineers, whose response was largely discouraging. Their first reaction was that you cannot make parts that are more precise than the tolerances of the precision instruments you’re using to make them. At the time, Toyota had the most precise instruments in the world for machining engine parts.

I did not realize they had the most precise instruments in the world at the time! Over and over, it seems like the real innovation is not the product but the machine that makes the product. For Dyson, for Elon, and here.

“Look, Toyota’s already making products that are exceptionally high quality and to bring in more precise equipment to meet the accuracy and precision demands you’re asking is out of control, it’s ridiculous. You’re asking too much.” Not willing to give up, Suzuki said, “OK, I’ll tell you what. Try to make one of these high-precision products, an engine or transmission, and if we can’t do that, if that doesn’t work out, I’ll quit. I will give up on my request.”

I really like this guy.

Takahashi agreed he could make one of anything as long as it didn’t have to be in mass production. So he put together a team of his best engine engineers and they developed one high-precision engine that met Suzuki’s tight specifications. It was a hand-built engine and, when it was tested in an existing vehicle, there was remarkably little vibration with extremely good fuel economy. The team of engineers and Takahashi got very excited and they immediately began discussing how they could replicate this with mass production equipment.

Amazing what happens when you first pass that hill of ‘impossibility’ - a world of excitement awaits!

The people at each one of these different departments, R&D, production engineering, and so on and so forth are looking toward the policy of their superiors to see how to act, and naturally once I was able to bring Mr. Takahashi from production engineering over to my side, things became much easier to do. So there were various troubles and problems along the way, however, every time that happened I would say thousands of times, tens of thousands of times, “counter measures at the source, follow the concept of ‘this yet that.’” The end result was not just my effort alone, but all the people along the way who originally opposed what I was doing, and who all came around and were able to achieve all these targets that I had set in the first place.

He’s able to bring along the entire organization - even his detractors. That is someone who is exceedingly skilled at navigating big company dynamics.

As a result of Suzuki’s engineering approach of achieving no-compromise objectives, the Lexus program took off and accomplished exactly what he wanted—a smart design and a very smooth ride. The feel of the ride at 100 kph and 160 kph was practically the same, despite the fact that you were traveling 1.6 times faster. To say the least, the consumer was impressed, and it showed in the numbers sold. At the time of the Lexus launch, Mercedes-Benz’s three models (300E, 420SE, 560SEL) had no rival in the U.S. market. But Lexus, with only one model, was able to sell, in one year, 2.7 times the number of all three of those well-established Mercedes combined. As of 2002, the Lexus was the best-selling luxury car in the United States.

Toyota always wins.

When Toyota started out in the automobile business, the engineers had no choice but to be innovative. As Toyota became a global powerhouse with clearly delineated product families, its thousands of engineers became specialists tweaking the next Crown and the next Camry. Lexus broke the behavioral mold and engineers who had known only the conservative, risk-averse Toyota suddenly were working on a bold, new, challenging project. This renewed spirit would carry over into an entirely new project, with new objectives and challenges. Toyota was about to reinvent its vehicle development process with the Prius.

A little bit of luxury attitude - no compromises - will force you to question your long-held assumptions.

Prius

[T]he more detailed conceptual blueprint was completed in just six months. Normally the first step in this phase would have been to develop a physical prototype. But Uchiyamada decided that if they quickly made a prototype they would get mired in the details of improving it. He wanted to thoroughly discuss multiple alternatives before narrowing in on a decision.

In software engineering we call this doing a ‘spike’. The best is if the team can do multiple spikes with different methods before committing to a deadline. Only once you do the spike and truly know how you will do something can you even give a deadline - we call this difference uphill versus downhill.

At this point in 1994, the team still had rejected the notion of a hybrid engine. It was considered too new and risky technology.

They had less than 12 months left!

It seems they concluded a 50 percent fuel economy improvement was not enough for a 21st-century car. They wanted double the current fuel economy. Uchiyamada protested that this would be impossible with current engine technology, to which they replied, “Since you are already developing a hybrid vehicle for the Motor Show, there is no reason not to use a hybrid for the production model” (Itazaki, 1999). It then became apparent to the team what these two executives were trying to do. They did not want to come out and order the team to make a hybrid. Instead, they warmed them up by requesting a hybrid that did not have to be a production model for the auto show. They then led them to the natural conclusion that a true 21st-century car had to have breakthrough fuel economy and thus a hybrid seemed the only practical alternative.

This is very sneaky! I’m kind of surprised that an upfront corporation like Toyota would oeprate like this.

So, when Uchiyamada took up the challenge, he got one important concession from management: that he could select the finest engineers available within the company to work on the hybrid system.

Only fair - you give me an impossible deadline, I want the dream team.

From the time Uchiyamada agreed to develop a hybrid concept vehicle in November 1994 until the deadline for the auto show in October 1995, there was less than a year to develop at least a workable hybrid engine and the vehicle itself. With extreme time pressure, the temptation would be to make a very fast decision on the hybrid technology and get to work on it immediately.

Insane time pressure.

The timing pressure was immense, but it did not push project leaders to cut corners. Uchiyamada refused to compromise even on a lower-risk approach.

This is very impressive.

Once a car style development process reaches this point, it is called a clay model freeze—though auto executives are notorious for making significant changes in the basic styling well after the so-called “freeze.” Not so at Toyota. Toyota stands out in sticking to its decision on the vehicle styling at clay model freeze. It goes through an unusual degree of “thoroughness in decision making” (nemawashi) to make a good decision at this point.

This is probably the best sign of a well-functioning organization.

In 1996 the auto industry standard for developing vehicles, particularly in the U.S., was five to six years. But as early as 1982, Japanese auto companies were developing vehicles in 48 months. So when U.S. auto companies heard that Toyota was on an 18-month development cycle—from clay model to start of production—they were in awe. But the 18-month cycle in Toyota was typical for a variation of an existing model—and the breakthrough Prius had only 15 months.

Absolutely break-neck speeds.

Takehisa Yaegashi was a senior manager who had supervised many engine development projects and was personally recruited by a board member to lead the hybrid engine team. When he agreed, he immediately went home, explained the situation to his wife, and moved into the company dormitory to get away from all distractions.

If this isn’t an example of the type of intensity that a great mission and great work can inspire I don’t know what is.

Toyota still did not have a workable prototype. Normally, just before mass production, prototypes have been tested and work almost perfectly. In the case of the Prius, however, since R&D was being done simultaneously with product development, practically every new technical breakthrough required a new prototype car. And the new prototypes almost never ran properly the first time.

Well that’s nerve-wracking.

As December was approaching, he wanted to give the team a little push. The launch date for the Prius had been kept confidential and was known only inside the company. Conferring with Wada, they decided to make a public announcement in March. They knew that a public announcement would make it a matter of pride and social responsibility for Toyota’s engineers to deliver on time.

Again - I’m pretty surprised this is an acceptable form of motivation. Wouldn’t you want to discuss this internally first?

The Prius did launch on time. In fact, it launched in October 1997, two months ahead of the December target date, and the world’s first mass production hybrid car was offered to the Japanese market, soon to be followed by a U.S. launch.

Incredible.

[T]he month after launch, orders for 3500 units had been received—over three times the monthly sales target. This was very unusual for a car costing two million yen and being sold at no discount. Worldwide sales since then have continued to grow, to over 120,000 units by early 2003. Toyota has 80 percent of the world hybrid market and has many hybrid vehicles in development.

Ends the same way everytime - Toyota wins!

Critics of Toyota’s heavy investment in Prius, estimated to be in the hundreds of millions to $1 billion, have questioned the return on investment. Koji Endo, an equity analyst of Credit Suisse First Boston in Tokyo estimates Toyota must sell 300,000 hybrids annually to pay off the investment. Toyota is not there yet.

With 2025 hindsight, it was obviously worth it.

The seemingly impossible deadlines set by top leadership for the Prius project and the numerous technical challenges faced by the Prius engineers dramatically improved Toyota’s already excellent product development process in two key ways.

Pressure is the best forcing function. Those who want to do great work must face pressure. I see this theme over and over, but I just don’t understand why. Wouldn’t a skunkworks team devoid of pressure be the best environment? Is it just that without external forces we cannot push ourselves hard enough? How do we prevent cutting corners despite the pressure, like Toyota does? This is the part that I’ve never seen happen in software. Everyone cuts corners, thinking “well the user will never see it”. And they may not, but they also might.

Manufacturing and production engineers are now involved very early in the design process—working with design engineers at the concept development stage, to give input on manufacturing issues. This level of cooperation at such an early stage is unusual in the auto industry.

This is pretty much why we at Motion switched to doing ShapeUp. Product and engineering need to coordinate from the earliest possible moment.

One thing remarkable about both the Lexus and the Prius is the “no-compromise” attitude of the chief engineers. At some point, with the intense time pressure to do a seemingly impossible job, one would expect the leader to say, “OK, let’s pick a direction and just get on with it.” But repeatedly throughout the Prius development, Uchiyamada would step back and say, “Let’s stop and reflect” (hansei). “Let’s rethink what this project is about.” “Let’s test every possible design for a hybrid engine in the world.” “Let’s have a design competition and get all the styling studios to generate competitive designs.”

This is incredible leadership.

[C]entral to the Toyota Way is thorough consideration in decision making. It is not acceptable to quickly choose a direction and go racing off in that direction. Exploring all possible alternatives and considering pros and cons of each while consulting all partners who have something to offer allows Toyota to execute fast, once a decision is finally made, without backtracking to remake decisions.

I think we can all learn from this.

Every person I have talked with has a sense of purpose greater than earning a paycheck. They feel a greater sense of mission for the company and can distinguish right from wrong with regard to that mission.

I think this is the only way they can wring greatness out of people so consistently over time. People crave meaning behind their work.

Global Competition

Toyota executives understand their place in the history of the company. They are working within a long-term philosophical mission to bring the company to the next level. The company is like an organism nurturing itself, constantly protecting and growing its offspring, so that it can continue to grow and stay strong.

Extremely long-term oriented. The best companies are always like this.

Nixon’s import surcharge was reversed, but the government did not pay us back. We still went back and paid every customer and dealer for all that extra tax they had paid on cars they purchased from us. We lost money. But we did it to satisfy the customer and to gain their long-term interest in us …. We were the only company that did it. We got approval from Japan and it was not a time when we were real rich, either. We struggled to make payroll.

It’s times like these that prove the character of a company beyond any doubt. Incredible decision.

I think 5-7 percent of the customers actually complained about tire life. To us that is a big deal, as we are used to dealing in complaint levels of far less than 1 percent. So we sent the owners of every Lexus where these tires were specified a coupon they could redeem for $500 and apologized if they had any inconvenience with their tires and felt that they wore out early. Many of these were customers who had already sold their cars. The way you treat the customer when you do not owe them anything, like how you treat somebody who cannot fight back—that is the ultimate test of character.

Could not say it any better.

The perception that everybody had at that time was that the Toyota Production System just worked people to death. It was just basically “Speed up!”

This is the sad part - everyone in the US just assumed at the time that the only reason Toyota was winning was because they were workaholics. But that didn’t explain how they were beating the other Japanese companies. The same thing is happening in China. BYD is demolishing the competition and everyone in the US just rolls their eyes and mumbles about government subsidies.

Even when the plant had been run by GM, the union local had the reputation of being militant, to the point of calling illegal wildcat strikes. Nevertheless, when Toyota took over management of the plant, against the advice of GM, Toyota decided to bring back the UAW local—and bring back the specific individuals who represented this UAW local in the plant.

[sic]

We had to change their attitudes and opinions. So we sent the shop committee to Japan for three weeks. They saw firsthand what the TPS was all about. And they came back “converted” and convinced a skeptical rank and file that this Toyota Production System wasn’t so bad.

[sic]

[U]nder Toyota’s new management, when the old factory reopened in 1984, it surpassed all of GM’s plants in North America in productivity, quality, space, and inventory turns.

A really remarkable way to deal with unions, which is no easy feat.

“Why would Toyota teach their coveted lean manufacturing system to a major competitor, GM?”

[sic]

The senior executives at Toyota speak of giving back something to the U.S. for the help they provided Japan to rebuild its industry after World War II. This is not mere lip service or pie-in-the-sky idealism. They really believe it.

A really remarkable attitude to have. They are extremely good people.

Toyota always chose a path of self-reliance and “let’s do it ourselves,” rather than relying on outside business partners. For example, when Toyota wanted to get into the luxury car business, it didn’t buy BMW. Instead it created its own luxury division, Lexus, from scratch, in order to learn and understand for itself the essence of a luxury car.

Very much like Dyson.

[W]hen other Japanese automakers were willing to buy kits from U.S. car-makers and assemble knockoffs of their vehicles, Toyota chose to design and build its own cars, drawing on pieces of designs from a variety of U.S. vehicles. In fact, Toyota was the first automobile company in Japan to develop vehicles without technical assistance agreements with the more advanced automobile companies in Europe and the U.S. It didn’t want to be dependent on outside assistance.

I keep harping on this, but it’s important to think deeply about why Toyota was able to beat the other Japanese car makers. Resist the urge to be intellectually lazy when you are losing - really ask yourself deeply why is the competition winning? What are they doing right?

Toyota is somewhat isolated from the rest of Japan. Toyota City is almost in the middle of nowhere. To get there requires going to Nagoya, a major though not central city in Japan. Then a long train ride and finally a taxi will get you to Toyota headquarters.

Very much like Microsoft and Amazon. There is a certain advantage to not being in the fray with everyone else. You naturally start to think differently.

Chrysler soon became the world’s most profitable car company in terms of profit per vehicle—not the biggest, but the most profitable per vehicle. Toyota was actually concerned by these developments. Up to that point, no U.S. company had shown signs of getting it right and developing a culture that could compete with Toyota. But Chrysler was beginning to get it right. Fortunately for Toyota, Chrysler was bought by Daimler. Chrysler’s renaissance proved to be just another flash-in-the-pan threat that would vanish as quickly as it appeared. By 2000, Chrysler was again on the verge of bankruptcy and scrambling to simply break even. What happened?

[sic]

…in any takeover there is a cleansing of the old guard who resist change—so out the door went all of these fine leaders who were starting to truly build something. And out the door went what they were trying to build, until all that mattered was short-term cost cutting to regain profitability.

[sic]

By gutting the leadership of Chrysler, Daimler gutted the culture that Chrysler was proudly building—a culture that made companies like Toyota nervous. Instead of building on this proud culture and protecting it, Daimler tore it down through radical cost cutting, eviscerating Chrysler’s strengths.

There are just so many of these takeover / acquisition stories that end horribly. Burger Chef, Dunkin Donuts, KFC, and now Chrysler.

Flow

If you are not shutting down the assembly plant, it means that you have no problems. All manufacturing plants have problems. So you must be hiding your problems. Please take out some inventory so the problems surface. You will shut down the assembly plant, but you will also continue to solve your problems and make even better-quality engines more efficiently.

Incredible management philosophy. Never shutting down the plant - which was an outcome that American car companies bragged about - was actively discouraged in Toyota. You are just scrambling and hiding the inevitable problems that arise. His Japanese bosses are telling him “I want you to shut down the plant more”. Solve the actual problems!

Quality should be built in. This means that you need a method to detect defects when they occur and automatically stop production so an employee can fix the problem before the defect continues downstream.

Systematic approaches to quality is the only way. Otherwise the rush of business deliverables will always trump the pursuit of perfection.

In the case of machines, we build devices into them, which detect abnormalities and automatically stop the machine upon such an occurrence. In the case of humans, we give them the power to push buttons or pull cords—called “andon cords” —- which can bring our entire assembly line to a halt. Every team member has the responsibility to stop the line every time they see something that is out of standard. That’s how we put the responsibility for quality in the hands of our team members. They feel the responsibility—they feel the power. They know they count.

Love this philosophy. It was incredibly controversial at the time. The notion that any employee can grind a multi hundred million dollar plant to a halt seems insane, but it empowers every worker. Quality is a group effort and we much all hold each other accountable.

[Y]ou need to constantly reinforce the principle that quality is everyone’s responsibility throughout the organization. Quality for the customer drives your value proposition, so there is no compromising on quality, because adding value to your customer is what keeps you in business and allows you to make money so everyone can continue to be part of the company.

You do this by your actions and how you prioritize things. Not by your words.

[I]t is impossible to improve any process until it is standardized. If the process is shifting from here to there, then any improvement will just be one more variation that is occasionally used and mostly ignored. One must standardize, and thus stabilize the process, before continuous improvements can be made.

[sic]

Capturing knowledge is not difficult. The hard part is getting people to use the standards in a database and contribute to improving it. Toyota spends years working with its people to instill in them the importance of using and improving standards.

No amount of technology or AI can solve an incredibly messy process.

When Americans were making pilgrimages to Japanese plants in the 1970s and ’80s, the first reaction was invariably “The factories were so clean you could eat off of the floor.” For the Japanese this was simply a matter of pride. Why would you want to live in a pigpen?

The attitude of personal responsibility that the Japanese take to everything is the most remarkable aspect of the whole thing. I love their culture. You can see it when you visit Japan. Even when they visit places, they carry bags and clean up after themselves. In America today we’re often chastized for judging a whole race based on one person’s behavior, but imagine if that were the norm. Everywhere you went, your actions would dictate how society viewed not only you but your entire family and race. How would you act? Would society maybe be better off?

Society has reached the point where one can push a button and be immediately deluged with technical and managerial information. This is all very convenient, of course, but if one is not careful there is a danger of losing the ability to think. We must remember that in the end it is the individual human being who must solve the problems. —Eiji Toyoda, Creativity, Challenge and Courage

I really want to read his book.

IT is critical to Toyota, but Toyota looks at technology as a tool that, like any other tool, exists to support the people and the process. For example, at Toyota’s service parts operations they continue to use an old software system developed in house years ago under much simpler circumstances. It has continuously evolved over the years and does exactly what is needed today.

[sic]

“At Toyota we do not make information systems. We make cars. Show me the process of making cars and how the information system supports that.”

We do not buy technology for the sake of it. If there is no clear line to helping us build cars better, there is no point.

Management

It was fashionable in the U.S. in the 1980s to think of the typical successful manager as an MBA who could walk into any business and instantly run it by looking at the numbers and using general management and leadership principles to whip the organization into shape. No self-respecting Toyota manager would subscribe to this notion.

Something something hating MBA’s. It just appears in so many books.

A common phrase heard around Toyota is “Before we build cars, we build people.” The leader’s goal at Toyota is to develop people so they are strong contributors who can think and follow the Toyota Way at all levels in the organization.

I love this.

Respect for people and constant challenging to do better—are these contradictory? Respect for people means respect for the mind and capability. You do not expect them to waste their time. You respect the capability of the people. Americans think teamwork is about you liking me and I liking you. Mutual respect and trust means I trust and respect that you will do your job so that we are successful as a company. It does not mean we just love each other. —Sam Heltman, Senior Vice President of Administration Toyota Motor Manufacturing, North America (one of the first five Americans hired by Toyota, Georgetown)

Treat people like adults. Adults expect to be treated harshly when they mess up. Adults can overcome obstacles and grow. Adults know they can rise to the occasion, so give them that opportunity.

While teamwork is critical, having individuals work together in a group does not compensate for a lack of individual excellence or understanding of Toyota’s system. Excellent individual performers are required to make up teams that excel. This is why Toyota puts such a tremendous effort in finding and screening prospective employees.

Yup. No amount of blameless postmortems is going to compensate for a shitty employee.

Toyota is very careful when deciding what to outsource and what to do in house. Like other Japanese automakers, Toyota outsources a lot, about 70% of the components of the vehicle. But it still wants to maintain internal competency even in components it outsources.

Vertical control is everything.

They want to learn with suppliers, but never transfer all the core knowledge and responsibility in any key area to suppliers.

This is vital, and what America greatly forgot. When you outsource something you lose both the knowledge and the ultimate control over product quality. You must find a way to retain both if you’re going to use a vendor.

Toyota wants to know what is inside the “black box.” They also did not want to trust other companies to put the effort they knew they could apply into cost reduction.

Anyone who cares about quality would have the same attitude.

You cannot be sure you really understand any part of any business problem unless you go and see for yourself firsthand. It is unacceptable to take anything for granted or to rely on the reports of others.

This is a philosophy that more managers in every industry need to adopt. You are paid for your judgement. If you simply believe what someone says off hand, you are losing the one thing that makes you valuable - your judgement!

Minoura: Mr. Ohno wanted us to draw a circle on the floor of a plant and then we were told, “Stand in that and watch the process and think for yourself,” and then he didn’t even give you any hint of what to watch for. This is the real essence of TPS.

Liker: How long did you stay in the circle?

Minoura: Eight hours!

Liker: Eight hours?!

[sic]

Liker: And what happened at the end of the day?

Minoura: It was near dinner time. He came to see me. He didn’t take any time to give any feedback. He just said gently, “Go home.”

Absolutely love the intensity. This is the level of dedication they expect!

We view errors as opportunities for learning. Rather than blaming individuals, the organization takes corrective actions and distributes knowledge about each experience broadly. Learning is a continuous company-wide process as superiors motivate and train subordinates; as predecessors do the same for successors; and as team members at all levels share knowledge with one another. —The Toyota Way document 2001, Toyota Motor Corporation.

This is a hard balance. After all, as they themselves admit in the next paragraph, you still need to hold individuals accountable. That is how you get better as an organization. But you cannot fire them over a single mistake. Like most things in life, it is a balance.

Teamwork never overshadows individual accountability at Toyota. Individual accountability is not about blame and punishment, but about learning and growing.

Completely agreed.

Without hansei it is impossible to have kaizen. In Japanese hansei, when you do something wrong, at first you must feel really, really sad. Then you must create a future plan to solve that problem and you must sincerely believe you will never make this type of mistake again. Hansei is a mindset, an attitude. Hansei and kaizen go hand in hand.

Shame is a great motivator. Society’s recent move to basically criminalize all aspects of shame is a great tragedy. In my personal life, most of my greatest changes and growth have come from a deep shame and a desire to get better.

People who have not been to Japan may not understand that the objective is not to hurt that individual but to help that individual improve—not to hurt the program but to show flaws to improve the next program. If you understand that deeply, you can get through that constructive criticism. No matter how good a program or a presentation someone makes, we believe there is always something that can be improved, so we feel it is our obligation. It is not an “obligatory negative” but an obligatory opportunity to improve—it is the heart of kaizen.

Absolutely. The job of a manager is to extract the very best out of you. If you are averse to feedback, you are arrogant. Regardless of how you speak or your demeanor, your actions declare that you are perfect and have no room to improve. To me this is high-ego, and I simply will not work with high-ego people.

Toyota in Japan hires almost all of its new employees fresh out of school, in some cases from a Toyota City technical high school, where students begin to learn the Toyota Way while still in school. Toyota is their first job … and typically their last. Therefore, they do not have to unlearn past practices from other companies with conflicting approaches.

This is exactly what Dyson does as well.

All U.S. senior managers were assigned Japanese coordinators. The coordinators had two jobs: coordinating with Japan, where there are continuous technical developments, and teaching U.S. employees the Toyota Way through daily mentorship. Every day is a training day, with immediate feedback shaping the thinking and behavior of the U.S employees.

Indoctrination is critical. The only way to start a new location is to first bring over high performers from an old location to make sureyou have a cultural flag bearer. This is also how Facebook opens new offices in different countries.

Learn by doing first and training second. I have been involved in many corporate start-ups of lean and someone will inevitably say, “Before we can get started with all these radical changes, we need to inform people of what we are doing through training courses.” This has led to elaborate corporate training programs with PowerPoint™ presentations. Unfortunately you cannot PowerPoint™ your way to lean.

Maybe the only thing more universal than hatred of MBAs is hatred of PowerPoint. Nearly every great founder hates it.

“The Toyota approach to training is to put people in difficult situations and let them solve their way out of the problems.”

No better way to learn!

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The book itself was quite boring, but this is mostly a testament to Toyota’s success. The practices that were once revolutionary are now taken for granted, so unfortunately I knew most of the details ahead of time. Still, the background on the family and the company was fascinating, along with comparing and contrasting with Ford.

I also wonder how Toyota is going to navigate this new world, where they missed the market on EV’s completely and their geopolitical rival China controls most of the battery technology in the world. What happens then? Hopefully they can learn and adapt. I think they’re a storied company with good hearts.