The Fall of the Mighty Toyota

by Jamie Flinchbaugh on February 17, 2010 · 16 comments

..and other such troubling headlines and comments have been popping up everywhere throughout the news cycle and the blogosphere. The major Toyota recall has stirred up activity every where, from a common leading story on the nightly news, to blog articles of all sorts.

I personally have been resisting writing about it at all. My personally practice is that I don’t like writing, or even judging, things that I do not have all the facts on. In this case, we have very few facts, although some trickle out daily. This is the same reason that Matthew May declined to comment. But at the same time, for each fact, two rumors surface. Although I felt it important to say something, I’m not going to weigh in on what Toyota did or did not do wrong, because these are facts that I just do not have.

Let me say that again in another way.. we do not even know the cause of the failure and to speculate and debate on how Toyota failed would be a mistake. I don’t debate things when neither I nor the other person do not have the facts.

On the other hand, I do have some observations, which I share and encourage your comments and thoughts.

1. Mental models are powerful, and dangerous, filters

Our mental models – or beliefs, principles, values – create a strong filter of how we interpret the data we receive. Our eyes and ears absorb information, but our brains turn that information into meaning. If one person believes that all people are inherently good, and another person believes that all people are inherently bad, the same observation will lead to different conclusions.

The situation with Toyota’s accelerators has really brought forth some of these mental models. Those who believed Toyota was evil and corrupt have used this as proof-positive that it is indeed true. To those that believe lean doesn’t work, this is the conclusive evidence. To those that saw Toyota as an organization that may have slipped a little from some pretty sound principles, this was a both a wake-up call and a demonstration of those principles.

An example of this is the Wall Street Journal’s take on reusing components and using common suppliers equaling lean. This is a false mental model, and they were taken to task by The Operations Room in Did lean ops lead to the Toyota recall? and by Mark Graban on Lean Blog. Even worse might be the media bias mental model that appears to prefer tragedy over science. This was well documented by Ed Wallace in The Real Scandal Behind the Toyota Recall.

2. The system design and the execution of the system are two different things

Enron failed because it was a bad system design. Incentives were designed to encourage the wrong behaviors with the lack of a culture to surface problems and gaps in governance that allowed it to grow. They actually executed quite well, perhaps too well, within a bad system design.

Regardless of how they failed, Toyota failed not because their system is flawed. There remains overwhelming evidence that the Toyota Production System, or the Toyota Way, or lean, works. Some have written, such as Why We Should Still Admire Toyota, that this doesn’t really change anything about the lessons we should learn. Companies have proven it to themselves over and over again. When you get the principles, skills, and methods of lean right, good things happen. Toyota’s failure was a failure in execution to that system, principles, skills, etc. As I already mentioned, I don’t know the facts of where and how things went wrong. But that doesn’t invalidate lean in any way, and certainly doesn’t mean as some of implied that lean caused the problem. Many writes struggle to distinguish between the auto industry and what is lean, as this post does.

3. Sustaining is hard, and requires continuous energy input

But things did go wrong. Sustaining cultural transformation and the behaviors. This is organizational entropy, and things will always deteriorate unless you continue putting in a greater amount of energy. This means, above all else, growing and developing people. This was always important to Toyota, but their rate of growing the business was faster than their rate of growing their people. There were experiments at all levels of how to speed up the rate of learning and development, but there are only so many ways to short-circuit the human learning process. Steve Spear, who wrote a case study on Toyota’s efforts to accelerate the development, wrote about gaps in learning and development. John Shook talked about it in Don’t Gloat Too Quickly – If This Could Happen to Toyota, It could Happen to You. Tom Johnson also shared that perspective in How Toyota Ran Off the Road.

The lesson is that you must be aware of your organization’s own deterioration. Never stop. Perhaps now fewer companies will try to claim that they are now “lean.”

4. Stopping systems, while expensive, shorten learning loops

Stopping their line, or pulling the big andon cord, is very expensive. Dealers who cannot sell and suppliers that cannot make parts are suffering tremendously. There is probably more than one supplier that was close enough to the edge that this will push them into bankruptcy. Stopping production is painful, very painful. Curious Cat reported on this early, and Evolving Excellence’s post on Toyota Finally Pulls the Big Andon Cord points this out well. It will hurt a lot of people, and suppliers will experience painful shutdowns, as reported by Reuters. So why do it?

First, it helps protect further customers. No more in the field means no more customers getting faulty product. Second, it focuses resources. A stopped line creates not only an urgency to drive this problem and no others. But it also eliminates all other distractions, excuses, and activities that can consume resources and attention. And third, whether you are stopping a whole line or just a segment, it freezes the current state so if there is something that requires observation, it can be done.

In this particular case, if they have to manufacture a large number of new components as replacements, running production strips those components that could go into recalled cars. By not running the line, the recall can be completed more quickly.

In the meantime, idled Toyota workers are making the most of the their time.

5. Customer perception is your brand

..and Toyota’s has been really hurt in a very major way. It will take a long time to earn loyalty back, and some will be gone forever. There are customers that would never drive a Chrysler again because their Plymouth Reliant broke down. Once you had a bad experience, that experience defines your beliefs in that brand.

Toyota hurt themselves with really bad, or just a lack of, PR and customer communications. We didn’t really hear anything from them until Lentz went on The Today Show. They are trying to make this up, but it is clear they didn’t know how to manage a crisis in customer confidence. They let the media define the story, and whether out of arrogance or ignorance, waited to tell the whole story when the time was right. However, while they are improving, this may be a story of too little too late.

Schumpeter demonstrates some of this failure in Getting the Cow Out of the Ditch. The Wall Street Journal explored why perhaps Toyota was ill-equipped for crisis management.

6. Complex problems are, well, complex

I was a former automotive engineer. Every engineer when they have to problem solve would love to have both clear data and be able to recreate the problem in a controlled way. Some problems just appear to be phantoms. In this case, the actual incident rate is very low. This also means it is very difficult to recreate. And data that comes after being filtered and interpreted but 1,000s of service techs and service managers is far from useful data. I’m not making excuses for them, but I’m indicating that (a) these kinds of problems often seem simple only after the fact and (b) just because they’re rolling out new parts doesn’t mean they’ve really found the root cause.

Jon Miller’s post on thoughts from a former Toyota quality manager points how complicated this problem just might be. It may be so complex that we’ll never really know the answer, or it was even really solved. This was suggested in a good analysis in Toyota’s Ghost in the Machine.

This story will be talked about for years. Books will be written about it about how obvious it was all along. But in the end lean still works, it is still hard to get work, and we should all worry more about our own gaps and progress than what some other company is doing.

Was the system failing or were the people failing to execute the system?

 
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{ 16 comments… read them below or add one }

1 Mark Graban February 17, 2010 at 10:11 am

Good stuff, thanks for the link too.

It was great to see you link to Ed Wallace. We’re lucky to have him writing for the Fort Worth paper, one of the few highlights in that paper. He always has great insights on the industry.

2 Mark Dokurno February 17, 2010 at 10:33 am

The more I hear about the current problems at Toyota and the more I am convinced that it is not an issue with lean. I know a number of Lexus owners that have had minor problems related to some of the advanced technology employed on the vehicles. I believe that Toyota in it’s push to reduce product development cycles and introduce the latest technology is making decisions without adequate component or system reliability data.

3 Blooming Engineer February 17, 2010 at 10:37 am

Good post, I especially like your point about complex problems. Most quality issues are simple – something is breaking or it doesn’t fit. These problems are pretty easy solve – not necessarily cheap, but easy. Part of the problem for Toyota is that they had a dramatic problem that reflected a fear among many people – the machine was out of control, the driver was unable to stop their car. The Toyota problem solving system could find a solution given enough time and enough data but the problem is that people want a solution NOW and there was neither time nor data. So Toyota came up with the floor mat hypothesis and implemented it – this probably solved some of the failures – but not all of them. Unfortunately the feedback loop is too drawn out for 24 hour news cycles and so Toyota appears unresponsive and indecisive.

4 Anshum Jain February 17, 2010 at 11:51 am

I would like to add the discussion by asking the readers to think about one of the bestseller business books of all times “Good to Great”. Those of you who have read the book probably appreciate the soundness of principles outlined by Jim Collins. It is also a fact that the number of organizations referred as ‘Great’ in the book no longer exist. Does it mean that those management and leadership principles were wrong? No, what is means is that there is a dimension of time associated with how well managed a company is.

Toyota’s president was probably first to admit that the company has lost little bit of direction in last few years by focussing too much on becoming number 1. Moreover if we all study and strive to be lean just because Toyota is (or was) lean, we probably haven’t understood lean.

5 Jon Miller February 17, 2010 at 2:19 pm

Great points Jamie.

The issue of complexity is one that’s worth more deep thought and discussion. Recently I’ve encountered the notion that even our smartest scientists and business leaders really don’t understand and manage complexity all that well. The first book was 13 Things that Don’t Make Sense by Michael Brooks and it talks about 13 science ideas that are incredible and puzzling. Essentially, after a certain point reductionist science is failing us, at least for now. The second books is A Fine Line by Harmut Esslinger (thanks Matt May for the recommendation) in which designer / entrepreneur Esslinger gives a convincing case for complexity as one of the killers of design, supply chain and ultimately business success.

Toyota got way too big, which is to say too complex, to be manageable by its current people and processes. Another way to say this is that their speed of learning was outpaced by the speed of their growth. This echoes what I have heard many who have left Toyota say about their former employer.

6 Andy Nichols February 17, 2010 at 2:26 pm

I agree with your views and comments. I am a little concerned that, despite the awesome power of the Toyota Production System, there is little known or publicized about their Design Engineering Process – where often such defects germinate. The stance has often been that they are so far ahead of the competition with TPS, that they even shared their tools, but what of the Product Development Process? Maybe they were also a little too ‘hands off’ with suppliers too, compared to the onslaught of domestic OE’s SQA armies and requirements….

7 Karen Wilhelm February 17, 2010 at 3:04 pm

Thoughtful and thorough roundup of the snowstorm of reaction to Toyota’s problems. Mr.Toyoda said what seems to me to be the problem is that they strayed from their principles. I think of it as Toyota having forgotten how to be Toyota for awhile. Learning from what they do in the next two to five years will be of great value to the lean community.

8 Simon Ellberger February 17, 2010 at 4:23 pm

Jamie: One of the best summaries I’ve read of the current situation. Thanks.

9 Jamie Flinchbaugh February 17, 2010 at 5:42 pm

Thank you everyone for the great comments.

Jon, I agree with your concerns about reductionist science. I’ll have to add those two books to my reading list. I hope they’re available in Kindle. I’m amazed at how willing people are to say “I saw these two things occur near each other, therefore it must be cause and effect.” It’s happening with Toyota. Yes, Toyota may have lost a bit of their grasp on Toyota way thinking. And yes, they had a major project. They may be related, they may not. They were plenty susceptible to major problems before just because of the sheer opportunities.

Simon, given the magnitude of contributions to this story, I really appreciate the compliment.

10 Mark Graban February 17, 2010 at 5:46 pm

@Jon Miller – Atul Gawande also makes the case (“The Checklist Manifesto”) that modern medicine has gotten way too complex technologically, therefore we need better process and better teamwork (ala checklists). Steven J. Spear touches on this same theme in “Chasing the Rabbit.”

You could argue, even with its problems, Toyota is harming far fewer people than healthcare delivery around the country does. Yet THAT problem is not front-page news. Go figure. So much for Pareto analysis for what’s really killing people.

Not trying to hi-jack the thread, Jamie…

11 RalfLippold February 17, 2010 at 6:12 pm

Hi Jamie,

Thanks a lot for connecting on Tom Johnson’s entry http://blog.pegasuscom.com/Leverage-Points-Blog/bid/30450/How-Toyota-Ran-Off-the-Road-and-How-It-Can-Get-Back-on-Track:-)

Complexity however is not the problem from my point of view. What seems to be the problem is that humans (in general) have the tendency to “not”-see the interconnections of the various processes.

Systems thinking (and in a more rigorous form system dynamics) clear up the mist of what is truly going on in a corporation, or any organizaton of which size whatsoever.

This however reveals “hidden agendas” and the intentions of organizational design that inevitably leads to unintended consequences. Who would like to get their “hidden agendas” opened up and thrown off their current position? What is their reaction?

@all, we always speak of Toyota. Are we sure these guys are all equal? For Germany I can tell you that Toyota is not what we all think Toyota stands for. Some visits at dealerships told me different;-(

It still and always is about PEOPLE and their individual role they play in the “big business game”. A dive in Edgar Schein’s “DEC is Dead, Long Live DEC” is worthwhile especially in understanding what dynamics have kicked in a while ago at Toyota and the various departments.

Best regards from a very positive thinking lean guy from Dresden

Ralf

12 Sean Leo Ryan February 17, 2010 at 6:52 pm

Great post. From a customer management perspective, it seems the narratives on Toyota have taken two themes – 1) its a failure in PR and crises management and, while bungled and needs to be fixed, it should be manageable as such, or 2) its a bigger long term failure related to loss in customer focus, choosing to focus on rapid growth leading to quality issues,thereby in turn destroying customer loyalty as its brand was associated with quality.

Given the well documented leadership Toyota has had in instilling a customer focus throughout the organization, its hard to see this issue as sudden company-wide break down in customer-centricity. However, its also hard to see this as only “bungled PR problem”.

What resonated for me was seeing ABC News, posing as a customer caller to a Toyota CCR and the rep bungling the call in a big way. I can only imagine the thousands of calls repeated like this each day, making the customer base even more unsure. And what is the dealer network doing? More mixed messages?

Even the most well run PR campaign does not have the ability to fix these types of front line customer issues (which ironically was also broadcasted on national TV). And, IMO, “PR Only” “Crises Management Only” approaches are legacy ways to manage wider issues like this these days. PR increasingly is not effective in isolation, when the “mass media” channel is shrinking in importance, you have a complex dealer and customer service network, and is only one out of many many customer touchpoints now used for evaluation.

But, at the same time, its a major stretch to say thee current issue means Toyota has somehow lost their company-wide focus on customer-centricity… that’s huge jump IMO but its being repeated in media and blogs. Moreover, to my knowledge, it does not seem that there were other indicators that they “took their eye of the ball” in these areas recent history.

However, I am not a Toyota analyst, so if there are more data points to show that this indeed has been a growing trend inside Toyota, then that recall storyline can easily weave into the narrative.

But if this line of argument is solely based on the management of this single issue, while bungled, then that’s really not sufficient to make sweeping claims about anything, as you point out.

13 Matt May February 17, 2010 at 9:44 pm

Excellent post and review Jamie. I like the point about the two different types of people. There’s a third, I’m finding out: the shoulder-shruggers.

As you suggest, and for the same reasons you cite, I’ve declined the media. I don’t think it takes brains to speculate without a knowledge wheelbase, which is what 95% of the commentary is. And I honestly don’t think the offerings are sincere or authentic..most of it is spotlight grabbing for another agenda.

We may never know the cause at the deepest level. But can see how Toyota is handling things. Personally, I’m disappointed that Akio Toyoda has declined to face Washington. I think it’s an opportunity missed. I think while it might make sense in Japan, it can do more harm than good in America and Europe. He doesn’t need to have answers, just transparency. Hr is new to the helm, he inherited a perfect storm, and part of weathering it is taking public responsibility for it on the soil where many of the tragedies occurred.

He could turn some Toyota goodwill into illwill, which would be a tragedy in and of itself. I think the most damaging indictment is the WSJ article about “Toyota’s Secret Culture.” If it’s true, there were many bad decisions made, and too much in the way of executive nonchalance, denial, and blameshifting, dating back a half decade. And if true, I’m shocked.

14 Jamie Flinchbaugh February 17, 2010 at 10:33 pm

Ralf, having learned systems thinking and systems dynamics by some of the original thinkers on the subject, I would state it a different way. I agree we don’t see the interconnections, but systems dynamics doesn’t really simplify the mist. It just maps it. It’s a complex-systems mapping tool, mapping all the dynamics and interconnectivity. Of course, to some degree, it is always still a model and models always have limits.

Matt, I am disappointed in that decision too. Whether congressional hearings serve any purpose at all can be questioned. However, in part their intended people is to give “the people” a voice to question those who may have wronged the people. Although it’s not a criminal or civil legal case, it is the people’s case. Perhaps he was coached that he’s not that good in front of a camera, which is true. But I think he would have been better off doing this face to face, in the room. This shows a lack of understanding the American public and politics. Especially given that NUMMI is closing, and especially in Pelosi’s backyard, this just makes them a double target. Don’t get them more ammunition. Here is more on what’s going on with the hearings for those interested: http://www.autoweek.com/article/20100217/CARNEWS/100219917

15 Mark Graban February 19, 2010 at 12:34 am

Akio Toyoda changed his mind about appearing in front of Congress. Agree this is a good move.

http://ow.ly/18VO9

16 RalfLippold February 20, 2010 at 12:29 pm

Jamie,

You are right that system dynamics comes over far too complicated. Reading papers from the past conferences makes me think, “How to apply this into the daily work affairs?”

Myself I learned system dynamics a couple of years back from the founders and current leaders of the field at MIT Sloan. Having worked inside the BMW factory system at BMW Plant Leipzig for five years, system dynamics gave me the tools to see what was really going on.

Actually, besides rigorous modeling, which can be really time consuming and frustrating, the method is giving a good leading guideline for anybody affected by processes.

I am pretty sure that Toyota also has several folks working together with the employees on the gemba to get the processes straight (sustainably).

The following I just found, by chance while looking for something totally different, http://robertwziegler.com/co-creation_vol_1_issue_2.pdf

Perhaps the case is not even so difficult and surprising as we all think now.

Toyota will definitely learn from this current “desaster” and that is what Toyota stands for: Growing better after a huge problem!

Same happened to them in the 30s when their cars broke down on the roads faster than you could repair them.

Really enjoying the conversation, learning new perspectives and new people:-)

Thanks for providing this cool space Jamie!

Cheers, Ralf

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