Monday, December 11, 2006

Book Club: "The Toyota Way", Chapter 7

Chapter 7 of The Toyota Way explains the first of 14 principles: "Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals."

In this chapter, Dr. Liker breaks down the abstract principle of long-term thinking into smaller and more distinct ideas: a mission greater than earning a paycheck, doing the right thing for the customer, use self-reliance and responsibility to decide your own fate, create a constancy of purpose and place in history. In short, "do the right thing for the company, its employees, the customer, and society as a whole."

Two illustrative examples are given that show Toyota's commitment to long-term thinking. The first is the story of when Lexus tires began to wear-out quicker than expected, prompting Toyota to send all Lexus owners a $500 voucher for new tires. Toyota felt that even though the tires were within industry specs, they owed the customer an apology for not exceeding their expectations. They correctly realized that customer impressions have a ripple-effect on a brand, and that spending cash in the short-term was a good long-term investment.

The second example is the NUMMI story. Toyota established a joint-venture with GM at a factory in California known as NUMMI. They put in place their famed Toyota Production System, trained the GM managers on how to run it, and essentially invited the world's biggest automobile manufacturer to become lean. Why would they help their biggest competitor? The author explains that "by helping to raise the level of manufacturing at GM, they were helping society and community, as well as creating high-paying manufacturing jobs for Americans." Is this an extreme example of long-term thinking or what?

The chapter ends with "The Gutting of Chrysler's Culture: A Cautionary Tale." In this section, the author recounts the successful transformation of Chrysler by Lee Iacocca in the 80's, and the subsequent failures of his successors, Daimler, in the 90's. By focusing on short-term cost cutting, Daimler stymied the burgeoning Lean culture that Iacocca had established at Chrysler, leaving them far behind Toyota in the race to the top of the automobile world. Without a long-term philosophy, you can't establish a culture of problem-solving, learning, and improvement.

On a daily basis, homebuilders display an amazing amount of long-term thinking on the job site. Every time we beef up a support beam, double-check an electrical wire, or re-level a grade stake, we are thinking about the customer's long-term interests. Unfortunately, when it comes to business decisions (laying-off employees, buying equipment, offering new services, etc.), we often fall short of the gold standard set by Toyota. Not until an organization commits itself to long-term thinking, even at the expense of short-term financial goals, can it ever hope to become a lean enterprise.