Toyota Bashing

It seems we have a new pastime in this country: Toyota bashing.  It started when the first round of accelerator problems were announced and became a full-blown fad after the issue resulted in suspending sales of the company's most popular products.

Even Transportation Secretary Ray LaHood got into the act, saying that anyone who owns a Toyota vehicle should "stop driving it" (he later recanted his statement).  Call up virtually any news site today and there's a good chance you'll find something negative about Toyota.

I'm not here to downplay the seriousness of the accelerator problem.  The company deserves some of the criticism because of the massive scope of the problem.  We spend a lot of money on our cars and expect them to work safely and reliably.  Toyota's reputation for quality has also most likely contributed to the fallout in this situation.  They have been a hugely successful company for many years now and they have to take their licks just like any other company facing a massive recall.

The problem I'm having is that some of the criticism seems to be based on politics or ignorance rather than facts.

Lean is Not the Problem

The Wall Street Journal (WSJ) ran a story last week entitled, "How Lean Manufacturing Can Fail," claiming that the Toyota Production System contributed to the accelerator problem because of standardization of parts across models and a reduced number of suppliers.  I can see how someone who doesn't understand lean could think this, but the WSJ is a respected business news source and its reporters should know better.

Lean has been a key to the company's success (in terms of quality and profitability).  Standardizing parts across models - which, by the way is not just a "lean" concept - is what makes cars affordable.  It's the way the high volume automakers (as well as manufacturers in many other industries) do business.

Reducing the number of vendors also contributes to improved quality because it enables the company to work much more closely with each supplier.  Also, more suppliers means more variation in incoming products - thereby increasing assembly time and quality problems.

CEO Visibility

Another issue that's causing problems for Toyota is the lack of visibility of Akio Toyoda, the company's CEO.  Although I agree that this problem was large enough to warrant more media presence from Toyoda, it's really not how Japanese executives operate.

To demonstrate the difference between U.S. and foreign companies, how many people can name the CEO of Honda?  Volkswagen?  Total?  ING?  These are among the world's largest companies, but very few people can name their chief executives.  CEOs of foreign companies don't tend to grab the spotlight the way American executives do.  Toyota is learning a difficult lesson right now that Americans expect swift assurance from the chief executive that the problem is being resolved.

Japanese companies (especially Toyota) also tend to study problems methodically and do not jump to implement fixes until they feel they truly understand the causes.  Unfortunately, when we're talking about an issue like this, those using the product get very nervous about their personal safety while the problem is being analyzed.

Political?

My guess is that the media bashing is also heavily political, in nature.  American automakers have been beaten down so badly - mostly by Toyota - over the last several years that the buy American sentiment is driving many of the attacks. I guess we'll learn more about this when Volkswagen takes over as the world's number one automaker as a result of this crisis.

Several months ago, I wrote that Toyota had taken its eye off the ball and, as a result, problems were starting to surface (see Taking Your Eye Off the Ball).  It was evident to me back then that, in its push to supplant  General Motors as the world's largest automaker, Toyota seemed to forget what got them there in the first place.

I also wrote in the blog that it appeared that their problems were being addressed.  They have a new CEO and he seems to be refocusing the company on its fundamental purpose (to enrich society through carmaking).  I also don't believe that the bad habits the company developed had been around long enough to cause major damage to their culture.

My guess is that they will survive this slip-up and return to the number one spot over the next few years.  Toyota tends to be a very long-term focused company and I'm betting that they won't take short-term action that will result in hurting their future.  The company undoubtedly does not want anything like this to happen again, but if it does, they really need to channel their obsession with learning toward improving the way they deal with the American media.

Is Strategic Planning Dead?

The Wall Street Journal ran a story last week on the downfall of strategic planning.  According to the article, companies learned during the recession that flexibility and quick decisions are more important to a business than planning, and that strategic planning as a practice is becoming outdated.  I hope anyone who decides to scrap a company's strategic planning process based on this article clearly understands the ramifications before doing so.

As I read the article, I found that the authors pointed out many of the misconceptions of the strategic planning process more than the problems with the concept itself.  People often mistakenly utilize the process as solely a financial review and confuse strategic planning with budgeting.  The article mentioned several examples of companies that realized during the recession that they were not reviewing sales and spending numbers often enough to react to quick changes in their markets.  By itself, this realization makes perfect sense as the last two years has been characterized as the worst since the Great Depression.  With that said, however, the need to stay on top of budgets has nothing to do with the value of an effective strategic planning process.

Strategic Planning 101

Strategic planning is a process by which an organization defines its strategy to successfully achieve its fundamental purpose.  The outputs of the process include high-level objectives (critical improvement areas) and initiatives (action plans to address the barriers that prevent achievement of the objectives).  It is a valuable process to assure the organization understands its strategies to improve its competitive position and be successful for many years into the future.

Periodic review is required to (1) assure that the initiatives are progressing as intended; and (2) assure that the initiatives - if they are progressing - are actually resulting in achievement of the high-level objectives.  For example, an organization may create an initiative to change its ERP system in order to support the objective of improving inventory management.  If the new system is implemented but inventory turns do not improve and stock-outs continue to delay shipments, it may be that the ERP system was not the problem and, therefore, should not have been an initiative.  The management team needs to revisit the inventory management system in order to determine how to improve the situation (e.g., identify other initiatives that will result in achieving the objective).

There is no single approach for strategic planning that will work for all organizations.  The process must be tailored to the specific circumstances and culture of each company.  The depth, frequency, and type of review will be different for everyone, but it must still be done if the organization is to become and remain successful.

Remember the Future

Eliminating the strategic planning process will only serve to increase the number of attention deficit disorder (ADD) companies that already exist.  The short-term behavior that has severely weakened so much of western business will continue, resulting in a continuation of dramatic swings in earnings and share price.

Let's be clear - I am not discounting the value of quick decision-making to a business.  Problems occur, though, when "quick" becomes "careless."  A company can benefit from continually focusing on speeding up decision-making without sacrificing quality.  Improving information systems and training can speed up decision-making without putting the company at risk.  If this is what a company needs, though, it will become evident through the planning process.  Those who believe that strategic planning is a slow process that does not add value are not doing it correctly.  If the process is too slow and is not helping the business grow and succeed, it needs to change.

The leader is responsible for assuring that the organization survives the short-term so it can succeed in the long-term.  Quick decision-making and frequent reviews can help take care of the short-term while effective planning (and successful implementation of the plans) is the key to taking care of the long-term.  Stop strategic planning and you might as well forget about the future of the company.

Being Lean is Not Enough

One of the hottest trends in business over the last few years has been lean.  Most of the Fortune 50 companies currently claim to be doing lean and the market is flooded with training and consulting companies touting the benefits of the approach.  I recently Googled the term lean+business and received 30.1 million results.  It appears that we're presently in the midst of a lean blitz.

Don't get me wrong, I think lean is a strategy from which virtually every company can benefit.  It is a great way to gain control over processes and improve quality while reducing costs.  Throughout my career, I helped many companies implement lean and have seen some great benefits as a result.

The problem I'm having is that lean is being oversold to business.  Consultants and practitioners are promoting lean as if it is the cure for all of a company's problems.  I have gotten into many discussions over the years with people who are disappointed when leaders don't place lean at the very top of the company's priorities.

Part of the Picture

Lean can be a valuable part of the company's overall strategy.  The critical word here is part.  There are other elements of a corporate strategy that are just as - if not more - important depending on the company's individual circumstances.  In the most simple example, a company can be highly successful with lean but go out of business if it is not offering products or services that people want to buy.

However strategic planning is specifically conducted, the process should generally include an analysis of the four high-level objectives that are necessary for success:  (1) People/Leadership Development; (2) Process Improvement; (3) Product/Service Development; and (4) Market Development.  There are times when one or more of these areas will need extra focus, but unless all are analyzed on a regular basis, the ability to understand which areas are in need of attention is limited.

Strategic planning requires an assessment of the company's situation to understand where the current barriers are to achieving success at any given time.  The barriers can be weaknesses that interfere with success, or opportunities that can help the company grow and improve performance, but they will become evident during the process of understanding and evaluating the four high-level objectives.  The analysis helps senior leaders understand where the company's focus (in terms of investment and resources) needs to be in the coming one to three years (or beyond, depending on the normal planning horizon).

Let's Maintain Perspective

The point here is not to oversell the benefits of lean, and to understand why executives don't necessarily put it at the top of the company's priorities.  As an initiative, lean can directly support the process improvement objective and indirectly aid product/service development, but to truly help an organization succeed, it is important to understand that it may be end up being something other than the top priority.

When an Acquisition Becomes a Distraction

With business finally showing signs of recovery, the amount of M&A activity is sure to pick up again as money becomes more readily accessible.  We have already begun to see the increase with large corporations including ExxonMobil's acquisition of XTO Energy, Stanley Works purchase of Black & Decker, and Google's announcement to purchase AdMob.

Small company M&A activity has also begun to increase and I expect the trend will continue as the level of confidence in the future grows.  Although true of any size company, small companies must be especially careful that an acquisition does not become such a distraction that it pulls management attention away from running the organization, as a whole.

Fighting the Distraction

Since an acquisition ties up a lot of a company's capital, there  is often a great deal of pressure to assure the newly acquired company becomes profitable as quickly as possible.  Unfortunately, it is common for a number of problems that were undiscovered during the due diligence process to surface fairly soon after the acquisition takes place.  These problems have a tendency to become a drain on management resources, and can easily pull the attention of the company's senior leaders away from running the business.

Organizations do not run themselves.  Even with the most successful organizations, bad habits can creep in that will lead to long-term problems if not dealt with quickly.  Since senior leaders in small companies tend to be much closer to the organization's activities than do those in medium and large companies, they often have more of a direct effect on the company's operation than they realize.  A long-term distraction - like an acquisition requiring a lot of attention - can fundamentally change the parent organization before the leaders realize it has happened.

What to Do

If at all possible, attempt to understand the critical issues before the acquisition takes place.  For a variety of reasons, this is not always possible, so it is important to assess the acquired company quickly to learn about the problems that can prevent or delay success.

Once the issues are understood, it is critical for the leader to assign responsibilities and clarify expectations quickly to keep from getting too wrapped up in the issues.  There needs to be frequent updates about the progress in addressing the issues so action can be taken quickly to keep the changes on track.

Dealing with an acquisition without ignoring the overall business may require temporarily assigning people and/or bringing in outside help for a short period of time to help with the transition.

There will obviously be situations where additional attention is warranted by senior leaders to put the merger back on track, but it is essential to remain sensitive to the possibility of distraction in the process.  Above all, never forget the company's fundamental purpose throughout the process and focus effort on integrating the acquisition in a way that does not compromise the mission and vision of the new, larger organization.  Doing this will greatly enhance your ability to assimilate the acquired company quickly and successfully.

The Value of Thinking

"Thinking is the hardest work there is, which is probably the reason why so few engage in it." - Henry Ford

Do we consider the ability to think critical to business success?  If so, why do companies place such a low value on thinking?  How many organizations today would truly appreciate an employee who takes time regularly to sit in his or her office to think?

I believe if we started to value thinking and took the time to teach our organizations how to think, we could revolutionize the world of business, leading to greatly improved performance, as well as employee satisfaction and quality of life.

Thinking in Business

When I led an organization, I encouraged team members to make decisions. I also encouraged people to think - individually and as a group - before making a decision.  What I found in many cases was that a vast majority of poor decisions were the result of jumping to a solution without thinking.  On the other hand, I have observed that the most creative solutions and innovative idea result from deep reflection and thought before acting.

The U.S. culture is heavily rooted in the Puritan ethic that greatly appreciates doing.  This contributes to the tendency of businesses to value the person who acts quickly much more than the one to takes time to think before acting.  Our organizations are fjull of people who stay very busy doing things, but rarely think about what they are doing.  As a result, we face the same problems day-in and day-out and fail to achieve or sustain significant levels of improvement in productivity or quality.

This general disregard for thinking creates friction that continually pulls even those organizations that value thinking toward a culture of doing.  I believe this is the reason that companies respected for creativity and innovation tend to lose their edge as they become larger and more successful.  Think about how many internet startups have changed from high growth companies with imaginative offerings to stagnant, poor performing organizations.  Companies like Apple
, Toyota and LG, on the other hand, are among the very few that have been able to maintain their creative edge in products, processes, and services.

Thinking Required

Organizations are very complex systems that make it difficult to clearly understand the effects that result from actions taken.  To truly comprehend how a change in one part of the organization will affect another requires thought and reflection.  On many occasions, I have seen a change implemented by one area of the company result in increased costs and headaches for another.

I also believe that the lack of thinking is one of the reasons lean initiatives fail.  Lean requires a level of creativity and systems thinking that are nonexistent in many companies.  solving a problem requires a clear understanding of the underlying causes and the creativity to develop effective solutions.  Without the ability to think and reflect, improvements will tend to be short-lived.

What to Do

Because of the cultural resistance to thinking, encouraging people to reflect on issues before acting is not easy.  Everybody is so busy doing things that it very difficult to get them to take time to think.  Orders need to be entered, reports need to be written, customers need to be called, and deliveries need to be made.  Asking people to stop and think will be seen as adding more to an already full plate of things to do.

The key is to start small.  Leaders can encourage thinking as part of the coaching process to help
team members deal with problems and issues.  In one company, I initiated a policy requiring people to sit and think about their jobs for ten minutes each day.  Some did it and, I'm sure, others just said they did, but eventually the organization began to change because it became clear that I valued thinking.

However it is done, transforming the culture toward thinking before doing will help release the dammed up potential within the company.  Eventually, the change will become evident in productivity improves, more innovative products and services are introduced, and ultimately, the performance of the organization improves.

The Price of Fear

What is fear costing businesses each year?  Thousands? Millions? Billions?  It obviously can't be accurately measured, but when I think about some of the organizations I have worked with throughout my career, I'm guessing the figure is outrageously high.

Although th extent of fear differs for every organization, it affects virtually all companies either internally or through its supply chain.  Since much of the cost related to fear is indirect and difficult to measure, most companies don't think about it or put forth the effort to reduce its existence.

The Effects

Fear is not necessarily a bad thing for the human race.  It is an emotion that leads us to act when we sense danger.  As a fundamental instinct, fear is a very short-term behavior that motivates us to avoid or escape from dangerous situations.  Fear can lead to bursts of energy and creativity to assure safety and survival.

Within the workplace, however, fear tends to be a chronic condition that wears people down over time.  Although chronic fear affects people in different ways, most psychologists agree that it is destructive.  Any positive effects on motivation and action are short-term.

The common fears that exist within organizations include fear of layoffs, disagreeing with decisions and opinions, asking questions, and taking risks.  In business, the areas that are negatively affected by these fears include the following:

• Creativity & Innovation  When people are stressed, the conscious mind blocks creativity and innovation from occurring.  Fear prevents people from relaxing to the point where they can access the right brain and develop creative solutions to problems;
  
  
• Goals & Objectives  People will avoid committing to stretch goals and objectives when they feel there will be repercussions if the goals are not met.  Fear also leads people to do whatever is necessary to meet a goal and nothing more because of the concern that exceeding a goal will result in a higher target in the future;
  
  
• Customer Focus  A culture of fear and blame causes people to focus on meeting the needs of their boss rather than the customer;
  
  
• Health Issues  There have been numerous studies on the negative affects of stress and fear on personal health.  Chronic stress suppresses the immune system, leading to an increase in colds and flu, in addition to a host of potentially more serious conditions.

Taking Action

So what should business leaders do to address the problem of fear?  I have talked with senior leaders who are apathetic about fear because they see no reason people should feel afraid within the organization and see it as an individual weakness.  Unfortunately, company leaders do not have the perspective to judge the level of fear throughout the organization.  Also, this belief basically results in writing off the potential contributions of those who are negatively affected by fear.

When I work with organizations that are attempting to improve performance or implement a change initiative, I often recommend implementing a survey to assess the level of fear that exists.  The survey should enable a classification of the etent and types of fears that exist in order to develop actions to improve the situation.  Of course, a survey will only be effective if the people within the company trust that the individual responses will remain confidential.

Developing plans from the highest levels of the organization to reduce fear greatly improves the chances of success.  It also shows that management is concerned about the work environment and the emotional health of people.  When approached in this manner, the release of human potential to improve the organization can be staggering.

World Class Suppliers Need World Class Customers

As part of their effort to slash the cost of auto parts by 30% over the next three years, Toyota met with its suppliers last week to enlist their help in the process. Based on their reputation for dealing with suppliers, I'm guessing that Toyota will approach the process in a much different manner than most companies, and the process will be very successful.

Instead of squeezing suppliers by beating down prices and lengthening payment terms, companies like Toyota work with suppliers to find improvements in designs and processes that lead to real and sustainable cost reductions. When approached in this manner, the supplier and customer benefit from the process and the savings result in strengthening, rather than weakening, the supplier.

Two Glaring (and Common) Examples

I once worked with a Fortune 500 company that issued a policy for its divisions to lengthen payment terms to all suppliers. Based on the formula, the new policy could result in payment to a supplier being delayed by up to 90 days after receipt of the product or service.

Procurement professionals at a particular division for the company (Division A) implemented the policy and were praised (and rewarded) by the corporate office. One of Division A's suppliers was another division of the company (Division B). As a result of the change in policy, Division B cut off shipments of a critical component to Division A because it paid its invoices too slowly. Because of this, Division A's shipments fell because it couldn't get the component elsewhere; costs increased (due to production stoppages); and profits dropped because of its inability to ship and invoice its customers. Division B's profits also fell because it stopped shipping to Division A.

And another . . .

In another example, a friend of mine owns a company that supplies parts to the Detroit automakers. During a visit to one of the automaker's factories, he noticed a problem in the production line with the assembly of a particular model. As part of the process, the car was flipped to enable installation of a particular subassembly. Problems occurred because the subassembly could not be completed until the car was turned back upright, and it frequently fell apart before it could be secured.

On his own accord, my friend developed an inexpensive grommet that could be placed on the subassembly to properly secure the parts as the car was flipped upright. After the final assembly was bolted together, the grommet could be easily cut away, thereby completely eliminating the problem.

the customer adopted the idea and changed the process to utilize the grommet. Even though the grommet was a very low cost part, the automaker's procurement department - in an effort to further reduce the cost - decided to purchase the grommet from a competitor instead of from the company owned by the person who developed the part. In a situation where a supplier - without direction from the customer - took the initiative to solve a problem that caused delays, extra costs, and headaches for the customer, the customer displayed a lack of respect for the supplier by awarding the business to another company. Needless to say, my friend was not motivated to solve future problems for the customer.

Stop the Madness

The above examples are unfortunately fairly typical of western business. If we are to come out of the recession strong and ready to compete, we have got to learn that the relationship with a supplier is based on more than price and payment terms. A company cannot win if its suppliers lose. Besides the obvious, who wants to do business with a loser anyway?