Business Best Practices

For many businesses, our current knowledge of computing technology, manufacturing processes, machine capabilities, and integrated information systems, will be outdated in a few years. “The only constant we face,” said an ancient philosopher, “is change.” For top management, success depends on more than merely being able to articulate a vision of where and what the organization needs to be. Top management must develop a solid approach and methodology that managers will use for fostering and implementing positive change throughout the organization. Process-oriented leadership is what organizations need today.

The clear delineation of a vision for the organization’s future is a key role for top management. But all too often, this vision has focused mainly on achieving certain financial results such as gaining market share, return on investment, and inventory to sales ratios. Envisioning what the business needs to be requires that the vision be aligned foremost with customer requirements and an assessment of the organization’s current status and overall ability to achieve its long term objectives. If top management is to successfully manage change, what needs to be developed is a description of issues such as:

• What the company will look like when working inventory turns are increased by 90%?

• What will be required of self-directed, small work groups to achieve throughput reduction targets?

• How will we interact differently with suppliers and distributors after integrating our information systems and business functions?

• How will management processes change?

• What skills will our workforce and managers need?

• How will people be measured and rewarded when goals are achieved?

Asking these kinds of questions will help top management better define the vision of what things the organization will need to do and how it will have to do them. This is the basis on which a solid methodology for managing change depends, and leadership rests.

Whether you are implementing Lean Operations, Six Sigma, Supply Chain Management (SCM), Enterprise Resource Planning (ERP), or some combination of these management philosophies, you are introducing a major change into your organization, and it must be consistent with—and support—the firm’s overall strategy. There are three steps–critical to achieving lasting performance improvements–that are preconditions to successfully bringing about any major change:

1) evaluate the environment

2) Develop the Organization’s mission

3) Originate a strategy

Southwest Airlines has followed the process, as described above. At its inception in 1971, Southwest surveyed its environment and targeted an underserved market segment: short hop flights in Texas.

Realizing that the firm had to keep its costs down to compete against its full service competitors, Southwest’s operations strategy included use of secondary airports and terminals, first come first serve seating, few fare options, smaller crews flying more hours, snack only or no-meal only fights and no downtown ticket offices.

As result of its experience in Texas, Southwest developed the capability to wring-out costs from its airline operations. This capability—competing on the basis of being the low cost provider—continued to fuel its growth. For example, Southwest designed a route structure that matched the capacity of the Boeing 737, the only aircraft in its fleet. The use of only one plane minimized the costs of pilot training and aircraft maintenance. Superior leadership, strategic planning and execution on the part of top management has enabled Southwest to be a consistent money maker while other airlines have lost billions.

Top management is ultimately responsible for the positive changes that can transform the organization. Regardless of the changes being undertaken, they ought to be understood clearly within the context of the organization’s strategy. In our next post, we will describe another ingredient that must be present for change to take root, namely, instituting a change management  process.

Mr Milz overhauled
this 100 years-old grandfather clock.

Despite having an unacceptably high unemployment rate, the US manufacturing sector has over 600,000 unfilled jobs. This is due to the fact that our educational system isn’t producing graduates with the skills that are sought by employers.

Nancy Hoffman, author of the book Schooling in the Workplace: How Six of the World’s Best Vocational Education Systems Prepare Young People for Jobs, argues that the United States should adopt a European-style education system, in which students in their last two years of high school have the option of participating in highly structured workplace apprenticeships that involve working for pay several days per week, and spending the rest of the time in the classroom. This system is known as vocational education and training or VET.

So what are VET’s advantages? Meet August Milz, a product of Germany’s VET system. As a youngster, Mr. Milz spent two years at a clock school in Germany, and then served as an apprentice at a clock manufacturing company. He went on to run a number of successful clock repair shops, and is currently the owner of A M Clock Repair SVC, Inc

Following is a recent interview with Mr. Milz. It describes how he ultimately found his calling through VET.

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How did Germany develop such a strong vocational education and training (VET) system?

Unlike the US, Germany doesn’t have natural resources that are the basis of the economy. In Germany, the economy is based on production—not on the stuff that comes out of the ground. The government supports—and the system supports—learning a trade, doing something, building, working. The whole system goes back to the Middle Ages. Working in a trade was highly valued as only honorable people were eligible to participate. During this time, Germany wasn’t even a national entity; it was a political entity. In contrast, in the US, the only entity that supports education for tradesmen are the unions. For example, carpenters and electricians have to be licensed, which requires that they are able to demonstrate that they have been properly trained and educated in their specific trades.

What made you decide to go into the clock field?
Two things. One was that my schooling for higher education was interrupted because of World War II. When things normalized again, I was told that I was too old to pick up where I left off. My father had a small clock factory before the war that was closed during the war. My grandfather was a clockmaker as well..so it was a family tradition. I grew up in manufacturing.

What type of vocational education and training (VET) was available for someone wishing to learn about the clock trade?
I grew up in Schwenningen. a city located near the Black Forest where all of the major clock companies were located. There was a clock school in town. The institution had a three-year educational program involving a parallel apprenticeship. Students went to school and worked at the same time.

After going to school and apprenticing, a student got their diploma. But the diploma didn’t entitle them to own their own shop, or teach. The students had to work another 6 years under a Master, learning how to design their own mechanisms. Then they had to take an exam, which—if they passed—enabled them to become a Master. Only then could they own their own shop, or teach. That’s how the system worked.

What was your personal experience with the program?
While attending school, I worked in a factory that had a large machine shop where they made the clock’s internal mechanisms. I learned about the workings of the machinery, and how to set them up. Eventually, I was put in charge of production. As a result of this experience, I completed the entire program—schooling plus apprenticeship—within 2 years.

Does Germany still have clock schools?
Yes, it does. A couple of months ago I got a call from my nephew. His son is starting clock school, beginning as an apprentice at Junghans, where he works at the company three days a week, and then goes to school for 2 days a week. He will continue with this schedule until he finishes his apprenticeship.

In terms of the clock industry, how should VET be applied here?
There are two aspects to consider. One is designing new mechanisms; the other is repairing existing clocks. The education for each category is different. We don’t need Masters in the US, because —although the US used to be a great manufacturing center—today clocks are made in other countries, and then imported to the States. A Master learns how to design the mechanism, calculate the number of gears, and all that. There is no need or market for that. The need is for repair.

What should be done in terms of US vocational education?
For over 100 years clocks have been imported here. There are countless millions of clocks, but there is nobody to take care of them. That’s why I decided to come here to open up repair shops. There is definitely a need for a clock repair and maintenance school in the US; however, any new program must also include working as an apprentice.

August, Thank you!

[My comment: There are similarities between the plight of Doug Oberhelman, CEO of Caterpillar, whose company is unable to find qualified factory workers, and August Milz, owner of A M Clock Repair SVC, who can’t find properly-trained, clock repair people. Both individuals run businesses that are constrained by a lack of qualified workers. This is ironical, in light of our high unemployment rate.

Only by reforming our educational systems, can we hope to solve this problem. We must develop more meaningful partnerships between business, academia, and government. Ultimately, the goal should be to integrate school and work experience in a specific career area, ending the distinction between academic and vocational preparation.]

The senior management team in Toyota City, Japan has designed the systems, strategies and organizational structures that have culminated in the recall of the GX460. As described in today’s Wall Street Journal, a power struggle is diverting top management’s attention from solving a multitude of internal problems:

Toyota’s CEO Ako Toyoda has demonstrated an abysmal lack of leadership. See recent blog post

• Despite recalling cars in Europe in order to replace defective accelerator pedals, Toyota continued to ship cars to US customers containing these same defective accelerator pedals. Also, Toyota has consistently stonewalled the NHTSA to avoid having to issue recalls, despite documented safety issues. This behavior—on the part of Toyota’s management—is unethical.

• There has been a lack of communication between management in Toyota City (Japan), Europe and the US top management team. Although US senior management pointed out quality problems several years ago, these calls for action appeared to be unheeded by senior management in Japan. The current organizational structure is dysfunctional. It needs to be thrown out, and replaced.

• The  Toyota Production System (TPS) used to represent the quality gold standard that other manufacturers benchmarked against. Taiichi Ohno, a Toyota executive, founded this system. He described its essence as “removing the non-value-added wastes.” Toyota has recently recalled over 8 million automobiles, an incredibly humongous “non-value-added waste.” All of the company’s stakeholders have incurred the costs associated with these recalls:  customers, stockholders, and employees. Clearly, the TPS–as Ohno envisioned it–is broken.

• In the book The Toyota Way, Jeffrey Liker—who spent 20 years studying Toyota—describes the essence of the Toyota culture as being a focus on “respect for people” as well as a focus on “quality over profits.” Over the past decade senior management has emphasized growth, market share and profits. Clearly, the chickens are coming home to roost. To right the ship, senior management must renew its commitment to quality and safety over profits and growth.

The one hopeful sign about stopping sales of the GX460 is that top management is finally pulling the andon cord, stopping the sale of an ostensibly defective product.

A Toyota Production Line: Empowering The Worker To Shut It Down is the Essence of the Toyota Way

Pulling the andon cord was a practice originated by Toyota when the worker on the assembly line could stop production at the first sign of a quality problem. Rather than stonewalling the authorities–as Toyota’s top management has done with the NHTSA—senior management is finally starting to eat its own dog food.

What is your opinion? Do you think that Toyota is experiencing just a bump in the road, or do the company’s current troubles stem from some fundamental issues?

Fail to honor people

They fail to honor you;

but of a good leader, who talks little,

When his work is done, his aim fulfilled,

They will say, “We did this ourselves.”

Lao Tzu

On 2/5/2010, Akio Toyoda, CEO and grandson of Toyota’s founder, broke his almost total silence in response to the safety crisis that confronted his company. In Japan, an apology is considered an art form. Although he apologized before and after the press conference, his apology was widely criticized by the press.

For example, Mr. Toyoda began and ended the press conference with a bow, but it was not the customary Japanese-style deep long bow of contrition.( Toyota Apologizes for Massive Recall) Mr. Toyoda bungled his apology in the same way that his company has bungled quality control. Furthermore, upon being asked a couple of questions, Mr. Toyoda appeared to be in denial that his company had any safety problems, as shown in the following clip:

How did Mr. Toyoda’s assertion that “Believe me, Toyota car is safety…” relate to the fears of Toyota’s customers who were being subjected to harrowing news stories of Toyota vehicles accelerating out of control?

In the above video clip—as well as in his tangled apology—Mr. Toyoda failed to honor the company’s millions of stakeholders:   dealers, employees, suppliers, and customers.

How to Lead Toyota Out of Crisis

There are literally hundreds of definitions of leadership. In the context of Toyota’s problems, I suggest that Mr. Toyoda heed the words of Warren Bennis. In the book Leaders: The Strategies for Taking Charge, Warren Bennis and Burt Nanus interview 90 leaders in their day, from Neil Armstrong to Ray Kroc, founder of McDonalds.

Leadership is a complex issue as there are many aspects to it. In this post, I will discuss only a couple of behaviors that the CEO of an organization must demonstrate.  Here is one thing. Bennis indicated that the job of the leader is to instill vision, meaning and trust in his followers. The leader has to be a good listener, showing sensitivity to the needs of the organizations’ many constituencies. For example, former US President Clinton famously stated “I feel your pain” when looking at an unemployed man in a town hall debate forum. This empathetic phrase was a crucial moment in his campaign for the Presidency of the U.S.  Mr. Toyoda must empathize with his customers, employees, dealerships and suppliers much in the same way that candidate Clinton empathized with the  electorate during the 1992 campaign. By listening to the “voice of his customers,” Mr. Toyoda will probably be able to regain their trust.

Furthermore, what Mr. Toyoda must provide is a vision of how Toyota’s will look, five years in the future, its future state. Inventing images, metaphors and models, Mr. Toyoda must depict a company that stands for quality. This vision is necessary to possibly regain the support of Toyota’s employees, dealers, suppliers and customers. The methods and strategies required to achieve this vision must also be laid out in the months to come.

This will be the first of several posts about leadership at Toyota. Although leadership at the top is crucial, there are three other issues that top management must address to restore Toyota to its former glory. For details, read the post: Troubles in Toyota City

The Presidentof Toyota–Akio Toyoda–yesterday suggested that the company’s current quality problems stem from an excessive focus on gaining market share and increasing profits (WSJ). This is ironical, given that increasing market share and reducing costs (thereby increasing profits) has always been a goal of Toyota. In fact, this has been a dominant strategy of Japan, Inc. for quite some time. A brief review of history will be instructive.

Having been devastated by the effects of WWII, Japan Inc. embarked upon a mission to grow market share globally. As a result, in the 1950’s inexpensive products–for example, “cheap” transistor radios– flooded US retail stores. Japan, Inc.’s strategy was to grow market share by producing low cost products. However, due to the inferior quality of products that were being produced at the time, Japan, Inc.’s expansionist aspirations hit a brick wall. The “cheap” transistor radios became the butt of comedians’ jokes.

So, the country in general—and Toyota in particular—regrouped. Producing products right the first time actually lowers costs, in effect, better quality results in lower costs. Quality, then, became the means to lower costs, which in turn results in greater market share.

A Lexus 2-seater Sports Car from Toyota

The Japanese Scientists and Engineers (JUCE) disseminated twenty tools of quality in the 1960’s and 1970’s. These tools became part of a complete philosophy of management known as Total Quality Management (TQM). TQM is Japan’s significant contribution to the philosophy of management.

An executive at Toyota, Taiichi Ohno, further refined  the TQM philosophy into The Toyota Production System. Using this system, Toyota produced automobiles that were second-to-none in terms of quality and cost. It is what made brand-Toyota synonymous with quality. It is the means by which Toyota surpassed GM in market share in 2008.

Violating the tenets of TQM and the Toyota Production System  caused Toyota’s quality problems.  Ako Toyoda’s comments yesterday about the evils of gaining market share made for good public relations; but they did little in furthering our understanding of the real reasons that led to the Fall of the Toyota brand.