Elevating Business and Societal Success Lean Enterprise: An … · 2016-10-18 · Introduction. 3....

The LeanSteering Team

The LeanChampion’s Role

ImplementingStructures

The Lean Transformation

The Lean Enterprise Model

Raphael L. Vitalo, and Christopher J. Bujak

Lean Enterprise:An Alternative

Approach to Commerce

Elevating Business and Societal Success

Volume 1 The Model and Other

Critical Knowledge

Raphael

Typewritten Text

Book Preview


L e a n E n t e r p r i s e :An Alternative

Approach to CommerceVolume 1 The Model and Other Critical Knowledge

Raphael

Typewritten Text

Book Preview


Lean Enterprise: An Alternative Approach to Commerce

Volume 1 The Model and Other Critical Knowledge

Raphael L. Vitalo, Ph.D. and Christopher J. Bujak

Copyright © 2014–16 Vital Enterprises, Hope, ME 04847. All rights reserved. No part of this publicationmay be reproduced, stored in a retrieval system, or transmitted, in any form or by any method, such aselectronic, mechanical, photocopying, recording, or otherwise without prior written consent of VitalEnterprises.

Cover Designer: Dobromil Nosek

Graphic Artist: Gennady Pugachevsky

Technical Editor: Mary K. Maddox

Images Copyright: New Vision Technologies Incorporated

Publisher's Cataloging-in-Publication

(Provided by Quality Books, Inc.)

Vitalo, Raphael Louis, 1942-


Lean Enterprise: An Alternative Approach to Commerce

Volume 1 The Model and Other Critical Knowledge / Raphael L. Vitalo and Christopher J. Bujak.

p. cm.

Includes bibliographical references and index.

1. Industrial productivity. 2. Industrial

management. 3. Organizational effectiveness.

I. Title.

HD56.V58 2007 658.5

QBI07-600246

To Anne

Always mighty, never a mouse.

All of us teach by the way we live,

Some for better, some for worse.

Some of us teach by intent,

But, without caring or skill, we fail.

You always taught by deed and intent,

Always with caring, never failing.

Preface 1

Introduction 3

Part 1: The Lean Enterprise Model 33

Chapter 1. Understanding a Commercial Model 37

Chapter 2. The Strategic Component of the Lean Enterprise Model 57

Chapter 3. The Operations Component of the Lean Enterprise Model 137

Chapter 4. The Foundations of Every Commercial Model 193

Chapter 5. The Executive Functions Component of the Lean EnterpriseModel

Chapter 6. The Origins of the Lean Enterprise Model

Part 2: The Lean Transformation

Chapter 7. How Businesses Apply Lean Thinking

Chapter 8. The Fundamentals of Change-Making

Chapter 9. Implementing a Full Adoption Lean Initiative: A Detailed View

Part 3: Implementing Structures

Chapter 10: The Lean Champion Role

Chapter 11. The Lean Steering Team

Chapter 12. Organizational Schemes for Implementing a LeanTransformation

Appendices

Appendix A: Tools Presented in Volume 2 A-1

Appendix B: Toyota's Executive Actions and Related Events 1995–2010 B-1

Appendix C: Distinguishing Between Knowledge and Information C-1

Appendix D: The Strategic Component of the Lean Enterprise Model D-1

Appendix E: The Operations Component of the Lean Enterprise Model E-1

Appendix F: The Executive Functions Component of the Lean EnterpriseModel F-1

Bibliography

Glossary

Index

About the Authors’

CONTENTS OF VOLUME 1 vii

viii CONTENTS OF VOLUME 1

Lean enterprise is an approach to conducting commerce that, when properly imple-mented, has increased the value received by customers, reduced operating costs, andprovided employees the opportunity to experience pride in the products they pro-duce and the services they deliver. It also yields new learning, improved employeeengagement, elevated teamwork, and has elevated the performance of businesses ontraditional measures of business success.

But, as the Introduction to this book makes clear—it has problems. For one thing,there is confusion about what a true lean enterprise is. Even when a proper under-standing is had, there is management resistance to adopting and sustaining its usedespite its successes on metrics they publicly embrace. And, beyond its tools, tech-niques, and principles—there is limited detailed guidance for how one transforms amainstream business into a lean enterprise. This book was initially intended to ad-dress these problems and enable the broader use of the lean enterprise approach tocommerce across commercial enterprises. We think it does that but, in the processof accomplishing it, something of far wider significance became clear.

Lean enterprise is not simply another way to run a traditional business. It is, indeed,a wholly different approach to commerce—a different economic system. Its views ofthe purpose a business serves, the role of employees, and how successful commerceis conducted are opposite from the mainstream business perspective. The dominantapproach to commerce lives by the mantra that a business’s only responsibility is tomaximize profits for its owners. As Milton Friedman asserted, a business’s purposeis “to use its resources and engage in activities designed to increase its profits”(Friedman, 1970). While ironically, the application of lean ideas does raise profitshowever, maximizing owner profits is not its aim and, in fact, such an aim is inimi-cal to its thinking. as the factual landscape of mainstream commerce reveals, profitscan be maximized by ways no lean entrepreneur would embrace.

As we probed this insight it became clear why mainstream businesses resist adopt-ing lean enterprise despite its benefits. In fact, their resistance makes sense. Trulyadopting lean enterprise means exchanging their current commercial model with itsprofit maximizing value set for one whose purpose and values they do not embrace.

It also became clear that the best way to explain the lean enterprise approach tocommerce was to clarify what a commercial model is using a schema to show all theissues it addresses, describing the lean approach by addressing each of these topics,and contrasting it with the traditional producer focused, profit maximizing ap-proach.

PREFACE 1

2 VOLUME I CRITICAL KNOWLEDGE

Introduction

As stated in the Preface, lean enterprise is an approach to conducting commercethat, when properly implemented, has increased the value received by customers, re-duced operating costs, and provided employees the opportunity to experience pridein their workmanship, new learning, and greater impact on their organizations.Both people who have led and those who have participated in its proper application,including the authors, have been energized by their involvement. We have also beenpuzzled. For one thing, the name, “lean,” does not seem to capture what we experi-enced. Yes, we streamlined work and workplaces, but that was the least of what wasachieved. The name seemed a poor descriptor of what was delivered and a barrier tounderstanding by others. Another of our puzzles is why does leadership not supportthe expanded use of the lean approach after we have empirically demonstrated tothem that its application results in significant monetary benefits, improved cus-tomer satisfaction, and elevated employee morale? These outcomes match what,publicly at least, business leaders espouse. We have also been puzzled by the differ-ent definitions of the aim that lean enterprise pursues and even more troubled bythe fact that these differences in thinking also reveal differences in the spirit and in-tent of practitioners. In this two volume series, you will find answers to these puz-zles and more. You will find detailed guidance for transforming a traditionalbusiness into a lean enterprise and, especially in Volume 2, tools to use in applyingthat guidance. You will also find that this approach to conducting a business has farmore significant implications for society as a whole then any of us has realized. It is,in fact, an alternative approach to commerce—a different economic system.

Contents of Introduction

Topic Page

Purpose 4

Our Premise in Undertaking This Project 4

Overview of Volume 2 Tools for Implementing the Lean CommercialModel

7

Volume 2’s Tool Development 8

What We Learned From Our Tool Development 10

Overview of Volume 1 The Model and Other Critical Knowledge 12

Barrier to Completing Volume 1: Documenting the Lean Model 14

Inconsistencies and Confusion About the Purpose of Lean Enterprise 15

Gaps in the Lean Literature 19

Two Ways to Overcome Barriers 24

Resolving What the Lean Approach to Commerce Is 28

Building a Framework 29

Documenting the Lean Model 30

Is the Model We Present Really the Lean Approach to Commerce? 31

INTRODUCTION TO VOLUMES 1 AND 2 3

Purpose

This two volume series is intended to broaden and deepen your understanding ofthe lean approach to commerce including:

what foundational assumptions underpin lean thinking;how the lean approach addresses the strategic, operating, and executive functionsthat implement a commercial enterprise; how it differs from the dominant producer focused, profit maximizing approach; what benefits it offers individuals, communities, and society as a whole; what is required personally and contextually to implement and sustain a lean en-terprise; and how one transforms an organization into a lean enterprise.

Further, it seeks to provide tools that will support you in transforming the ideas thatdefine the lean approach to commerce into a reality.

Our Premise in Undertaking This Project

Our premise at the beginning of this project was that the lean model was alreadywell developed and described in the lean literature. While we understood that thename “lean” was misleading (Exhibit 1, beginning on next page), we were confidentthat we would have no problem in representing the lean model based on how muchhad been written about the lean approach to commerce. Thus, we expected that themain focus of our work would be on developing the tools that one uses to accom-plish tasks essential to transforming a business into a lean enterprise and sustainingit as such.

We recognized that a wide array of lean tools already existed. In fact, we have usedthem in our lean implementations. These tools focus on improving products, proc-esses, and the functional aspects of workplaces (e.g., 6S, Kaizen,1 Quality FunctionDeployment [QFD], Single Minute Exchange of Die (SMED), Total ProductiveMaintenance [TPM]).2 We also recognized, however, that a different category oftools was missing. These tools support a person in defining the purpose, scope, andinitial point of application for a lean implementation, especially within multiactivitycompanies.3 They also enable you to operationally define and apply customer values

1 The term “kaizen” is used in two different ways throughout the lean literature. The basic use refers tothe principle of continuous improvement or striving for perfection. The second use refers to a specificsystematic process for removing waste from work processes and workplaces. The failure of authors tomake this dual use clear can be very confusing to readers of lean literature. In this book, we will use thelower case version, “kaizen,” when we are addressing the principle of continuous improvement. We willuse the upper case, “Kaizen,” when we are referring to the waste removal tool.2 Special terms associated with the lean model will be explained in the text when their meaning is imme-diately relevant. Otherwise, you can locate the definition of any unfamiliar term used in this two-volumeseries by accessing the Glossary in each volume.3 It is true that Value Stream Mapping and Analysis helps you focus improvement activities within avalue stream, but it does not assist in helping you decide with which function’s value stream to begin.

4 VOLUME I CRITICAL KNOWLEDGE INTRODUCTION TO VOLUMES 1 AND 2

Exhibit 1. What’s in a Name? Why the Name “Lean” Is Misleading

It is the name of the lean approach to commerce that everyone first encounters.For many, it is only the name that is known. Therefore, it is a fair question to ask,“What does the name ‘lean’ suggest as the essence of our approach to com-merce?” Our analysis of the name “lean” concludes that it is, at best, unhelpful interms of clarifying the fundamental thrust of the lean model and the scope of itsconcerns. It suggests an approach riveted on pursuing efficiency in business op-erations rather than one riveted on maximizing the delivery of value to customersand all stakeholders.

Through our research, we uncovered two roots for the origins of the name “lean.”The first and most referenced origin is the book, “The Machine That Changed theWorld” (Womack, Jones, and Roos, 1990). The second is the English translation ofTaiichi Ohno’s Workplace Management (Ohno, 2013). Ohno is considered by leancommunity members to either be the originator of lean enterprise or a majorcontributor to it. Neither source captures the scope of what lean enterprise signi-fies. Indeed, the second source is based on an error in translation.

The Machine That Changed the World

Womack, Jones, and Roos (1990) introduced the term “lean” to refer to the ap-proach to production used by Japanese auto manufacturers. That approach con-trasted with “mass production” and enabled the efficient production of tailoredproducts in small volumes. Greater profit could be realized by enabling a com-pany to respond to the varying wants and needs of different customer segments.They credit the term to John Krafcik, their research associate (1990, p. 13). Heused the word “lean” to represent that the Japanese approach “used less of eve-rything compared with massproduction—half the human effort ..., half the manu-facturing space ..., half the investment in tools, half the engineering hours todevelop a new product” (ibid). What can we take from this reference? If we wereto infer what a lean enterprise was about just from this description, we mightconclude that it is an approach to production that enables a manufacturing com-pany to operate with a very high level of efficiency and least cost footprint whileallowing it to respond to variations in the wants of different customer segments.

We might further conclude that (1) lean thinking focuses on operations and (2) itspurpose is to make your business’s production operations flexible, efficient, andleast costly. Based on this conclusion, we might reason that lean’s ultimate end isto provide a producer the capability to sell more products, generate better mar-gins, and maximize greater profitability. What do you think? Is that the ultimategoal that drives the lean approach to commerce? If you listen to Art Byrne, theperson recognized to have transformed the Wiremold company from the tradi-tional approach to commerce to the lean approach, you would answer, “No.” Hesaid, “To me ... the thing that is most misunderstood about lean is the fact thatlean is a strategic thing ... . To be successful you have to see lean as your underly-ing core strategy. Removing waste and improving your value-adding activities, inorder to deliver more value to your customers [italics added], is what lean is allabout” (Meyer, 2012). In other words, benefiting your customer is its strategic pur-pose, not maximizing company profits. Similarly, we believe that once you in-clude in your thinking all the ideas that Womack and his associates present intheir various works, you must also conclude that the essence of lean is more thanthe realization of efficiency, cost reduction, and profit maximization for theproducer.

Workplace Management

There is actually an earlier reference than Womack et al (1990) for the use of theword “lean.” It is in the English translation of Taiichi Ohno’s book, Workplace Man-agement, first published in 1982. This use, an artifact of translation, appears to

Continued


Exhibit 1. What’s in a Name? Why the Name “Lean” Is Misleading (continued)

misrepresent the point Ohno was making. In Chapter 2, Ohno uses the Japaneseword genryou to refer to companies that have apparently succeeded by stream-lining their operations—hence, the choice of the English word "lean" (Ohno,2013, pp. 29-30). By becoming ‘leaner,’ they became more efficient and, by theirreckoning, more successful. However, Ohno introduces this more common mean-ing of genryou only as a prelude to using the word differently to describe his per-spective. He alters the first character in the two character ideograph representingthe word genryou from one meaning “reduce” to another meaning “limited”(Ohno, 2013, Footnote 9, p. 29). By this “wordplay,” he intends to change theterm's meaning from “reducing weight” (literally; or becoming ‘leaner’ figura-tively) to “limited volume” or "limited production." Importantly, “limited volume”or “limited production” does not refer to “small volume.”

In fact, the quantity of product produced, in itself, has no significance for Ohno.Rather, as Ohno explains, what is important is producing only what sells in thequantity that satisfies demand. "From the standpoint that we only make what willsell and we do not make what will not sell, it becomes very important for limitedvolume production to be production at a low cost” (p. 31). Be careful in how youparse this statement. He is not saying that limited volume production must be atlow cost and therefore, low cost is what is fundamentally important. Rather, he issaying that producing only what sells in the quantity that matches demand is theonly real way to realize lowest cost production. As he goes on to explain, theremay be efficiencies in operations one can realize either through streamlining or,paradoxically, by producing large volumes. These may reduce cost from an ac-counting perspective, either in terms of total cost of production or unit cost.However, if what you produce sits unsold in inventory—none of these efficien-cies are beneficial. As you read Ohno’s statements carefully, it becomes clear thathe is essentially making the point W. Edwards Deming made to the heads of Japa-nese companies in 1950.

In his first lecture to them, Deming stated, “Every month you must make ... theright amount of product, or you cannot achieve economical production” (Dem-ing, 2013, p. 4). Ohno’s meaning is also similar to Deming’s statements about pur-suing cost reduction or efficiency. Deming said that if you pursue cost reduction,you may well reduce cost but you may also destroy your business. Neither costreduction nor efficiency is a proper focus for commerce. Ohno states "reducedweight" or pursuing ‘leanness’ may just as well eliminate muscle as fat. Essentially,pursuing cost reduction or ‘leanness’ is wrongheaded and can be dangerous.Thus, Ohno’s meaning by using his altered version of the word genryou is not costreduction through streamlining but ‘smart’ production—producing only whatsells. If all that is produced is sold, all resource consumption generates value. BothDeming and Ohno assign a controlling notion that every business person shoulduse to guide decision making so that they avoid the pitfall of pursuing ‘leanness’per se. For Deming, the central focus should be on quality—which, for him,meant producing outputs that benefit customers and that customers will want tobuy. The secondary control is producing a volume that matches demand. ForOhno, the controlling notion is more akin to the concept of "pull"1 but, by neces-sity, incorporates both aspects of Deming’s notion of quality since there can beno "pull" for products people do not value and will not pay for. For pull to lead tobusiness success, one must produce the right product, when it is needed, and onlyin the amount needed. For both men, pursuing leanness per se is at best irrelevantand at worst destructive to business success.1 Pull means that customer demand triggers the flow of activity that transforms resource inputsinto a finished product (i.e., value-adding activities).


to business decision making, involve stakeholders, make information- andknowledge-based decisions, and extract and share learning. As to problem solvingtools, the lean approach has many methods already documented (e.g., 5 Whys; A3problem solving; Cause Effect Diagram with the Addition of Cards [CEDAC]; De-scribe, Measure, Analyze, Improve, and Control [DMAIC]; Fishbone Diagram; PlanDo Study Act [PDSA]). With few exceptions, these methods are actually just piecesof a complete problem solving process. To improve their use, we would provide aframework with which to put these problem solving elements into context. Thatcontext would show each tool’s place in a complete problem solving process and re-veal gaps that we would close.

Before we started developing these new tools, we drafted a summary of the leanmodel using our prior study and experience. We used this summary to guide ourtool building. Lean tools exist to enable the implementation of the lean model.Without a grasp of the model, therefore, one cannot conceive and build an effectivetool. Once the tools were developed, our plan was to complete a detailed presenta-tion of the model, with citations, and use it to introduce the new, added lean tools.The description of the lean model would constitute Volume 1. The new tools wouldconstitute Volume 2.The deeper we proceeded into building the new tools, however, the more it becameclear that our initial premise—namely, that the description of the lean model pro-vided in the lean literature was complete—proved invalid. For you to understandthe contents of these two volumes and be prepared for elements you may find trou-bling, we need to retrace briefly part of our journey in developing the new tools andwhat we discovered. Since the tools were our initial focus and the stimulus for ourlearning about the state of the lean model, we will begin with Volume 2.

Overview of Volume 2 Tools for Implementing the LeanCommercial Model

Tools support us in accomplishing certaintasks. Consequently, we organized ourproposed set of tools by the tasks they en-abled a person to accomplish. We recog-nized that implementing a lean enterprisewas an instance of transformationalchange—i.e., an organization-wide changethat affects every aspect of an enterpriseincluding its strategic thinking and action,its operations, and how it implements itsexecutive functions. We understood thatthe lean approach to commerce had

Task 1 Focus the Lean TransformationTask 2 Involve StakeholdersTask 3 Understand Customer ValuesTask 4 Lead TeamsTask 5 Participate in TeamsTask 6 Solve ProblemsTask 7 Make DecisionsTask 8 Coach PeopleTask 9 Measure PerformanceTask 10 Learn and Share

Exhibit 2. Ten Enabling Tasks

the Lean Approach toCommerce Successfully

Essential to Implementing


special characteristics and challenges that required certain tasks to be performedthat were not necessarily important in other approaches to commerce. We used ourlearning from implementing lean and drew from the research into transformationalchange to create a framework of enabling tasks essential to a successful lean imple-mentation. Exhibit 2 lists these tasks. These enabling tasks do not directly create thelean enterprise. Rather, these tasks constitute the activities one must perform as heor she establishes and sustains the lean enterprise. For example, none of these tasksinclude guidance for restructuring your organization so that it supports implement-ing a Hoshin Kanri policy deployment system. But, in restructuring your organiza-tion, you need to perform these enabling tasks and do them well; otherwise, you willfail. The same is true for installing and operating all lean-specific technologies.4

Volume 2 is organized into chapters that address each enabling task. A brief de-scription of each task is provided in Exhibit 3, next page. A complete list of the toolsprovided in Volume 2 appears in Appendix A.

Volume 2’s Tool Development

Our first step in developing the tools was to define the purpose of each enablingtask and describe why it was important to do. We reviewed the actions involved inaccomplishing each task and—using our experience— identified which actionswould benefit most from a job aid or tool. For most of the identified tools, we hadprior work that provided the basis for a draft of the tool. For the remaining, we hadrecognized their relevance but never had the opportunity to build a tool to enabletheir performance. This was especially true for the set of tools that support under-standing customer values and defining value from the customer’s perspective (seeAppendix A).

The need for additional tools became apparent as we broke down each essential taskand analyzed how it would be performed within a lean approach to commerce.Other tool needs became apparent only through interacting with people chargedwith leading a lean initiative who sought our advice through our web site(www.vitalententusa.com). For example, the tool set for focusing the lean transfor-mation resulted from our conversations with people tasked to implement “lean.”Almost invariably, they had no idea where to start. Although unrecognized bythem, they had a good reason for being confused. Our dialogues with these leancommunity members made clear that they were tasked to accomplish somethingthat was not clearly defined by leadership and often was not what it appeared to be.

Finishing the development of the tools was quite a journey of learning. It is onething to fashion tools for use by people whom you are supporting face-to-face andquite another to fashion tools for use by people on their own. To make a tool trulyuseful on a free standing basis, you need to anticipate every issue the user is likely to

4 We do provide guidance for how to establish lean systems within your organization, but we placed in itPart 2 of this volume (Volume 1) titled, The Lean Transformation.


Exhibit 3. A Brief Description of the 10 Enabling Tasks

Task Explanation

Task 1 Focus the LeanTransformation

Guides you in defining the scope and direction for yourlean transformation and ensuring the feasibility of itssuccess.

Task 2 InvolveStakeholders

Guides you in identifying the stakeholders to yourbusiness and in eliciting and sustaining their construc-tive involvement in making the lean transformationsucceed.

Task 3 UnderstandCustomer Values

Guides you in identifying your customer segments,your customers’ spoken and unspoken values, and us-ing this knowledge to guide both your lean transfor-mation and the lean enterprise it establishes.

Task 4 Lead Teams Guides you in building a team charter and in leading,evaluating, and following up on team activities thatmanage, implement, and improve the lean transforma-tion and the operation of the lean enterprise.

Task 5 Participate inTeams

Guides you in getting and giving information andideas within team activities and in working with othersto build better solutions.

Task 6 Solve Problems Guides you in identifying, selecting, and describingproblems; understanding their root causes; developingsolutions; and taking actions that remedy them.

Task 7 Make Decisions Guides you in making choices by defining the goal ofeach decision, expanding alternatives, identifying thekey values that a “best alternative” must satisfy, andchoosing the alternative that best accomplishes thedecision’s goal.

Task 8 Coach People Guides you in stimulating learning and removing barri-ers to performance that hinder people’s success.

Task 9 MeasurePerformance

Guides you in understanding business measures; es-tablishing a lean-compatible measurement system foryour business and the lean transformation project; andensuring that all measures are sound, aligned with leanprinciples, documented, and used to support learningand decision making.

Task 10 Learn andShare

Guides you in developing and leveraging learningfrom your efforts to improve your lean transformationand sustaining the ongoing performance of the leanenterprise it establishes

encounter in learning and applying the tool successfully. You must clarify the tool’spurpose operationally, the context within which it can be used, the personal andcontextual requirements one must satisfy to use it, and fully present comprehensi-ble guidance for preparing for, using, and following up the tool’s application. Youalso need to provide concrete examples to facilitate people’s learning and use. Every


step forces you to confront questions you had not previously asked and to antici-pate problems that otherwise you would have handled in the moment of face-to-face instruction or coaching. Directly supporting a person in using a tool allows youto make point-of-use adjustments. These possibly-needed adjustments must now beanticipated and addressed; otherwise, the person using the tool may well fail.

We also wanted to anchor our tools in prior work others had already contributedrather than reinvent the wheel. Wherever possible, we used and cited such work.One example is the Kano model for classifying customer values. Another example isDeming’s Plan, Do, Study, Act (PDSA) cycle and his thinking about the differencein utility between information and knowledge and the importance of knowledge-driven decision making.

Other times, we found that the usual presentation of tools —especially problem-solving tools—was wrong headed. Presentations treated methods having differentcommercial labels (e.g., A3 problem solving, DMAIC, Ford 8D) as different in sub-stance when often they were just different in language or level of detail. Also, sometools presented as problem solving methods were basically aids for completing onlyone element in problem solving—like root cause analysis, and not the whole proc-ess. Other forms of problem solving were largely ignored in the lean literature, espe-cially forms of knowledge-driven problem solving (fault tree analysis, for example).In all these cases, we needed to explore the confusion, uncover its root causes, andfashion a solution. We concluded that one major cause for the shortcomings in ex-isting problem-solving presentations is that writers did not recognize the differencebetween information and knowledge. As a result, they did not realize that they wereomitting mention of knowledge-driven problem-solving methods.5 Another causeis that writers failed to recognize that all information-based problem solving meth-ods (e.g., A3, DMAIC, Ford 8D) share a generic, backbone metaprocess. Thismetaprocess was first described by Carkhuff (1985) as Explore, Understand, andAct (E-U-A). The E-U-A template provides a basis for recognizing the commonal-ties among all these problem solving methods and, indeed, for identifying whether aspecific method is complete or simply supports the performance of one or anotherproblem solving step.

When our work on the tools was done, we were quite proud of what we had accom-plished. We concluded that Volume 2 offered a unique set of change-managementtools tailored specifically to enable a lean implementation. More importantly, thepeople we shared the tools with found them really useful.

What We Learned From Our Tool Development

In building our tools, we had to constantly refer back to the contents of the leanmodel. The model guides understanding and correct use of the tools. Any tool, no

5 Appendix C, Volume 1 explains the differences between information and knowledge. The chapter ti-tled, Task 6 Solve Problems, in Volume 2 full explains information- and knowledge-based methods.


matter how carefully designed, can be used to realize a variety of ends any of whichmay be inconsistent with its original intent. The knowledge detailed in the model ofcommerce that the tool is designed to enable provides the only intellectual controlon the purpose to which a commercial tool is put.

Most often we revisited the lean model to discover how to differentiate between a‘proper’ use of a tool and from a lean perspective and an improper use. Driving ourconcern was the realization that many—perhaps most—applications of lean toolsfall into the category Graban terms “L.A.M.E” (Graban, 2007, 2010). “L.A.M.E.”stands for “Lean As Misguidedly Executed.” When the answer was not in our work-ing description of the lean model, we researched the lean literature. Often, we foundno answer. For example, should one use lean tools to accomplish the downsizing ofa business? If you say “Yes,” then how do you address the blowback on worker par-ticipation in continuous improvement activities when people realize they are assist-ing in ending their jobs? How do you resolve the apparent discrepancy betweenlean’s claim to be about producing benefits inclusively for all stakeholders with tak-ing away a worker’s livelihood? What about the basic rule for implementing leanthat some writers report—namely, that management must ensure that lean im-provements do not produce harm for employees? Is that rule conditional or is iteven a real part of the “lean thinking”?

Similarly, what about the use of lean tools to drive cost reduction solely for the pur-poses of improving the company’s profits? Is that consistent with the purpose ofmaximizing the delivery of value to customers or the notion of generating benefitsfor all inclusively? What about using customer values research not to add value butto create the appearance that a company’s offering has features that customers de-sire? Knowledge of your customer’s values can be used in different ways. I can use itto design into my offering functional features important to my customers. Or, I canuse that knowledge to shape its packaging and advertising to suggest (not say) that aproduct has a valued feature—e.g., it is healthful— when such a claim, if made ex-plicitly, could not be factually supported. Is that acceptable? Must value be real?Must the utility delivered be objectively valid? Continuing in this line of thought,can a company that makes a product that is inherently unhealthy (e.g., cigarettes)become a lean enterprise? Is the caveat emptor (“let the buyer beware”) principlethat is perfectly appropriate within the commonly applied producer focused, profitmaximizing approach to commerce also appropriate to the lean approach?

When the documented thoughts of lean writers did not address an issue, we wererequired to elaborate our understanding of the lean model using what seemed to bereasonable inferences based on what was documented. Each time, we workedthrough the logic, added a dimension to our previous description of the lean model,and generated our guidance.By the time the tool portion of the book was completed, our elaboration of the leanmodel had grown quite large. Many elements of the lean approach that we had


elaborated, while logically connected to content shared by one or another leanwriter, could not be referenced to the explicit statements of any lean author. Ourexperience told us that the need for these elaborations meant that the lean approachto commerce was not fully described within existing literature. Essentially, we recog-nized that our original premise was not valid and that we could not construct fromwhat existed a complete representation of the lean approach to commerce. Later inthis Introduction, we will probe more into this insight.

Overview of Volume 1 The Model and Other Critical Knowledge

Volume 1’s focus, from the beginning, was on providing the knowledge needed tounderstand the lean approach to commerce and enable the successful transition of abusiness from using its current approach to commerce to using the lean approach.We organized Volume 1 it into three parts (Exhibit 4). Part 1 focuses on explainingthe contents of the lean model. Part 2 focuses on guidance for transforming a tradi-tionally run business into a lean enterprise. And, Part 3 provides guidance for set-ting up a lean project to implement that transformation.

Volume 1, Part 1We understood that weneeded a new approach todescribing the contents ofthe lean model. Just report-ing the ideas previousauthors had shared wouldnot work. First, it would notaddress all the issuesneeded to guide the properimplementation of a leaninitiative. Second, even withrespect to what was docu-mented, there were toomany ideas for a linear nar-rative to communicate ef-fectively. When commun-icating a large array of related ideas, research tells us that you must use an organizing framework orschema within which these ideas are represented and interrelated; otherwise, theirpresentation is not useful to a learner (Cooper, 1998). People use the framework tomentally organize the ideas they read. Further, it helps them better retain thoseideas and recall them for personal use.

To address these issues, we begin Part 1 with a chapter that presents a frameworkfor describing any commercial model including lean enterprise. We explain the

Exhibit 4. Brief Descriptions of ThreeSections of Volume 1

Part 2: The Lean TransformationClarifies the two ways businesses attempt to apply leanthinking, reviews the fundamentals of change-making,and provides a detailed action plan for implementing alean transformation.

Part 3: Structures for Implementing LeanPresents a detailed description of the lean champion’srole; defines the goal, expectations, and duties of thelean steering team and details how it operates; andpresents various ways to organize a lean transformationproject so that it effectively addresses the size,complexity, and geographical dispersion of yourbusiness.

Part 1: The Lean Enterprise ModelPresents the framework of topics every commercial

solution with the solution contained in the prevalentproducer focused, profit maximizing model, and exploresthe origins of lean thinking.

model must address, explains how the lean approachto commerce addreses each topic, contrasts its


framework’s rationale and describe, with examples, the content that populates eachelement of the framework. In subsequent chapters, we use the template to ensurethat we describe all elements of the lean approach to commerce. We end Part 1 witha discussion of the historical origins of the lean model.

Volume 1, Part 2

We recognized that the 10 tasks that structure Volume 2 (Exhibit 2, page 7) do notrepresent a workflow for implementing a lean transformation. Indeed, the tasksused to structure Volume 2 overlap in occurrence and, once initiated, are essentiallycontinuous even after the transformation is complete. The tasks of transformationare time limited, largely sequential although some can be done in parallel. We con-cluded from this recognition that Volume 1 needed to provide an action plan forimplementing a lean transformation. Since the adoption of the lean approach tocommerce represents transformational change making, Part 2 begins with a reviewof the learning we extracted from transformational change research. This knowl-edge guides you in implementing the action plan for transformation also includedin Part 2.

In preparing the implementation guidance, we recognized additional gaps in thecurrent lean literature. Our prior consulting experience in a number of large com-mercial enterprises revealed to us that the structure of almost all companies is ahodgepodge of tradition, some logic, and often a good deal of politics. This organ-izational structure was an obstacle to implementing important aspects of a lean en-terprise—especially, a lean measurement system, the implementation of HoshinKanri,6 and functional teaming at the gemba.7 Parts of one business function in abusiness were often split from each other and placed under different functionheads. We had to address the question, “How is a lean enterprise structured?” For-tunately, our research uncovered the answer. The answer was triggered by state-ments made by Tokihiko Enomoto (1995) that revealed to us the role of ChesterBarnard in Japanese management’s conception of organizational structure.8 Otherissues resulting from the real-world state of most businesses needed to be ad-dressed. For example, you cannot improve processes until they are documented andbaseline performance information is collected for each of them—period! Rather6 Hoshin Kanri is a yearly planning process that involves all members of a business in building the subse-quent year’s business plan. The process also aligns all contributors, vertically and horizontally, in accom-plishing the plan’s integrated set of priorities. The process ensures consistent performance toward acommon goal. The most common English translation for this Japanese term is policy (hoshin) deploy-ment (kanri) or policy management.7 The term gemba means “where the real work is done.” It refers to the front-line workplaces where theproduct or service offering of a business or a business function are actually produced.8 Chester Barnard (1886–1961) is considered by many to be the premier theorist of organization and ex-ecutive functioning. His seminal work, The Functions of the Executive, was published in 1938 and is stilltaught in graduate programs in business and management today. While the model of organization andexecutive functions he formulated is an excellent fit to the current dominant approach to commerce, it isantagonistic to the lean approach. Nonetheless, his writings about how an organization should be struc-tured, among other topics, were widely praised in Japan in the early 1950s and did contribute to the leanmodel (Enomoto, 1995).


basic, isn't it? Yet, despite the existence of dusty volumes of “standards” and “meas-ures” in some companies, these simple requirements are usually not met. Hence, wealso needed to add guidance for verifying whether standardized work and its meas-urement exists in a business and how to establish it if it does not. In addition, youcannot engage employees in the business fully if there is distrust between nonman-agement and management employees. The typical finding in employee surveys isthat only half of all employees trust what management tells them. Thus, the readi-ness of the social context of the business must be assessed and, if deficient,remedied.

Volume 1, Part 3Finally, we wanted Volume 1 to include practical administrative aids used for struc-turing and managing a lean transformation. These aids are specific to the time-limited project that installs lean and, when completed, passes over its activities tothe normal functions of the enterprise. For example, such projects are usually led bysomeone designated as the ‘lean champion’, so we provide a detailed description ofthe lean champion’s role. These projects should always include a lean steering com-mittee composed of representatives from the executive, managerial, supervisory,and line worker ranks and, if present, from every union that operates in the busi-ness. In support of setting up such a committee, we offer a team charter that guideshow this steering committee should be operate. For both the lean champion roleand the lean steering team, we also provide a set of success criteria that one may useto evaluate their effectiveness. Finally, we present various ways to organize a leantransformation project so that it effectively addresses the size, complexity, and geo-graphical dispersion of a large, multiactivity business.

Parts 2 and 3 of Volume 1 progressed smoothly. Part 1, documenting the leanmodel, presented a special challenge.

Barrier to Completing Volume 1: Documenting the Lean Model

After assessing our extensively elaborated description of the lean approach to com-merce, we were forced to conclude that our representation of the lean model wasimpossible to root in any specific lean writer. Our presentation is systematic, com-prehensive, and internally consistent. Also, nothing in our description is out-of-linewith the lean thinking shared by one or more of the recognized community leaders(e.g., Womack, Shook, Liker, Emiliani). Bits and pieces of most of it do appearsomewhere in the literature. Yet, some elements seemed to have no explicit refer-ence in the existing lean literature—especially our statements about how a lean en-terprise should be organized, how it should compete in the marketplace, and how“inclusiveness”—lean’s concern for benefiting others as well as oneself—plays out ina commercial environment where self-interest prevails. But, when organized andpresented within the context of a systematic framework, in the manner we do inPart 1 of this book, the model as a whole seemed considerably more comprehensive


and definitive in describing lean commerce’s purpose and approach than anyonethus far has represented.

We faced this question, “Can anyone document a definitive statement of the leanmodel from the existing lean literature?” Based on our research and the extent towhich we had to elaborate existing content to complete our description of the leanmodel, our answer was “No.” Our research uncovered two obstacles to document-ing a complete lean enterprise model.

1. There are inconsistencies and confusion about the ultimate goal of the lean ap-proach to commerce.

2. There are significant gaps in what the lean literature addresses.

Inconsistencies and Confusion About the Purpose of Lean Enterprise

The misleading nature of the name “lean enterprise” mentioned earlier runs deeperin its effects than we first realized. Indeed, there are inconsistencies among leancommunity members about the ultimate aim the lean approach to commerceserves. That judgment is not just based of our analysis of the literature. Indeed, thefact that lean community members are confused about the ultimate goal their ap-proach seeks to realize is apparent to all who participate in or are observers of thevarious lean community forums that exist. Witness, for example, the different an-swers members produce to the basic question of “What Is lean?” (Exhibit 5, nextpage). Members appear to anchor their responses in their personal experiences,training, and readings. And, while not agreeing with each other, everyone with ananswer speaks with confidence.

In every online discussion about the meaning of lean enterprise we observed, atleast a third of the answers asserted that lean is all about “efficiency and cost reduc-tion” with the intent of maximizing profitability for the company. While respon-dents proposing this ‘efficiency and cost reduction’ interpretation rarely citesources for their assertions, they could. For example, Ohno states that “The mostimportant objective of the Toyota system has been to increase production efficiencyby consistently and thoroughly eliminating waste” (Ohno, 1988, p. xiii). Later hesays, “In the Toyota production system, we think of economy in terms of man-power reduction and cost reduction. The relationship between these two elements isclearer if we consider a manpower reduction policy as a means of cost reduction,the most critical condition for a business’s success” and “... all considerations andimprovement ideas, when boiled down, must be tied to cost reduction. Saying thisin reverse, the criterion of all decisions is whether cost reduction can be achieved [ital-ics added]” (Ohno, 1988, p. 53). Be clear, we do not propose that this excerpt, on itsown, presents a correct understanding of Ohno’s perspective. Nonetheless, on itsface, it appears to strongly support the assertions of the ‘efficiency and cost reduc-tion’ camp.


Exhibit 5. Sample of Definitions of Lean Offered in One Lean Community Forum

1. “Lean is providing value to your customers while eliminating waste as much as possible.Value means providing the product the customer wants, at the quality they want it, andonly when they want it.”

2. “Lean is about profitable growth - it’s as simple as that.”

3. “Lean is minimum inventory and minimum rework in a manufacturing industry.Extrapolating the concept to other industries, it would entail using capital in the mostefficient manner in order to produce the same result or, to increase output.”

4. “[Lean] is a philosophy for business that means reduce waste to improve the profit forcompany.”

5. “I believe Lean is one of the most powerful continuous improvement strategies in theworld. It brings out the best in workers and managers by getting them to collaborate moreand focus on the needs of the customer. The methodology challenges people to alwaysimprove and go way beyond their comfort zone.”

6. “Lean is simply a set of tools used to execute Process Improvement.”

7. “Lean is about cultures, mindsets, and behaviors. The tools and jargon are incidental to anorganizational culture that continually strives to improve, eradicates waste as a matter ofhabit, and has a disciplined process-focused management team that values its directcontributors. Techniques are temporary; principals [sic] are permanent.”

8. “[Lean] is about reducing the use of any and all resources, that could be put to profitableuse, including space.”

9. “Lean is a mindset. It is a philosophy that strategically and continuously reviews waste inthe organization and empowers teams to remove it. A byproduct of lean is, without doubt,improved profitability as all waste generates a cost. You are kidding yourself if you feel thebusiness will not expect [cost savings] as its ROI and [compensation for the] risk ofchallenging the status quo. Generally speaking you cannot embark on this journeywithout an understanding that there will be [worker] displacement; wasteful processesrequire additional resources and, by its very nature, a lean organization cannot – NO, willnot - allow that.”

10. “Waste removal/reduction is something you get from implementing lean; not the purposeof lean. The purpose of lean is to give the customer what they want, when/where theywant it, with the minimum consumption of resources along the way.”

11. “[Lean] is a strategy for linking, aligning, and coordinating our activities to give ourcustomers what they want, when they want it, at a competitive price.”

12. “I don't think that the focus of lean is the removal of waste as many people believe it tobe. Lean is about making what the customer wants flow.”

13. “In my opinion, lean is none other than waste killing.”

14. “Lean is a positive change in culture and methods that improves the organization'sprocesses as well increases customer satisfaction.”

15. “Lean/CI and most of its associated tools are designed to do three basic things. 1)Reduce/remove non-value adding activities (reduce waste). 2) Build quality into the wholeprocess. 3) Make the product or service flow.”

16. “I don’t think there is a definition of lean. Lean is now an 'umbrella term' that means allsorts of things to all sorts of people depending on their frames of reference. Earlier I madethis point that there is no definitive definition of lean and this thread confirms that. Thereason is that lean is essentially descriptive. It attempts to describe the management andproduction systems at Toyota in Japan and our understanding of that is changing overtime. As Joe [another participant] put it: 'It seems that people are taking different ideasand combining them together to redefine Lean.’”


A second portion of respondents define lean from an operations perspective. Theysee lean as focusing on the application of tools (e.g., 6S, Kaizen, TPM) to eliminateall non-productive work from work processes and to elevate the utility of work-places. Ohno is also the touchstone for their thinking, perhaps especially his bookWorkplace Management (Ohno, 2013). In that work he emphasizes continuous im-provement, challenging the current state to imagine a still better state, understand-ing the gemba as not just occurring in production areas but in administrative areas,and the importance of engaging the minds of workers.

Still another cluster of respondents view lean enterprise from an executive perspec-tive. They see it as a different approach to leading and involving people, one thatrecognizes the knowledge and creativity of workers. The lean approach developspeoples’ knowledge and skills and provides them opportunities to contribute to im-proving the business and share in the benefits they generate. Many of these commu-nity members define lean’s purpose as maximizing the delivery of value tocustomers as judged from the customers’ perspective in a way that benefits all stakeholders to commerce. Value is maximized by affirmatively adding it to offer-ings and services and not just by eliminating waste. Further, they envision the leanapproach as responsible for creating value for communities, governments, and soci-ety as a whole. Their focus leads us to characterize their view as strategic and notjust operational. They discuss the importance of competing through the excellenceof one’s offerings and of engaging the extended value stream9 in applying leanthinking. Regarding executive functions, they discuss the need to adjust human re-source management systems to comply with the lean perspective. They assert theneed for all business activities—ranging from the board room and executive suitethrough the management, supervisory, and front-line tiers in and across every busi-ness function—to work together as a team in the continuous pursuit of maximizingthe delivery of value to customers in ways that benefit all stakeholders inclusively.

While you might respond that none of these different perspectives are necessarilymutually exclusive—that comment leaves unanswered the central question: “Whichof these notions or what higher order notion represents the controlling aim of thelean approach to commerce?” Minimization of cost? Maximization of profit? Deliv-ering value to customers? Benefiting all stakeholders inclusively? How does a leancommunity member systematically resolve that issue? The answer seems to be,“with difficulty and uncertainty.” That answer is suggested by the findings of a sur-vey implemented by James Womack in 2010. He asked community members toidentify what the major barriers to propagating lean’s application were. To his “sur-prise”—but not ours—Womack discovered that “Many of you [lean practitioners]identified confusion about the meaning of lean as a barrier to progress in your or-ganization [sic]” (Womack, 2010). 9 An extended value stream represents the flow of input resources from suppliers to a business’s produc-tion system and from the business’s production system to and through the customers’ use of its output.Each of the organizations who contribute to that flow is represented in it.


The Implications of Confusion About Lean’s Ultimate Aim

The implications of this definitional problem seem poorly grasped by the leadersof the lean community. A set of ideas cohere into a system only when they are or-ganized around a central aim. This is clear in every definition of human and me-chanical systems. A commercial model is one instance of a human system(Barnard, 1968; Deming, 2000). It is the aim of any system that defines the role ofeach element within it, establishes the relationship among the elements, and regu-lates how they interoperate to achieve their common function. Thus, the purposeof the lean system, the ultimate end it is to serve, determines the meaning of allother assertions one may make concerning it. Certainly, everyone in the leancommunity will agree that lean is about driving waste out of processes. But, isthere agreement about the purpose that waste removal is to serve? Is it decreasedcost? Increased profit? Improved quality? Again, to say “all of these” is to saynothing because, depending on one’s primary intent, the significance of cost re-duction, increased profit, and quality improvement varies and the actions onemight employ to pursue each end will vary. It is the defined purpose of lean enter-prise that decides which of these three ends or, indeed, some other end, controlsdecision making when conflicts exist. Also, it is the defined purpose of lean enter-prise that guides decision making about both the means used to achieve theseends and what one does with the benefits realized. If, for example, maximizingprofit is the true end of lean commerce, do you disburse it to shareholders as thepopularly endorsed aim of a capitalist enterprise would seem to suggest (Bain-bridge, 2012; Friedman, 1970)? Do you risk some of it to discover better ways tomeet customer needs? Do you develop a rationale that bridges these ends?

More immediately, driving out waste may serve the end of efficiency, but effi-ciency as defined how? Is labor efficiency what some see as the meaning of theterm ‘lean’—as in “Less Employees Are Needed,” or is it efficiency in the sensethat customers only receive outputs having unadulterated value? Even the mean-ing of the term “quality” is shaped by what you think is the essential purpose leanenterprise pursues. If I believe it is about efficiency, then quality may simply mean‘zero defect’ [conformance to specification] or ‘six sigma’ perfection [almost zerooccurrence of out-of-bound values]. Is “defect” or “out-of-bounds” performancedefined from the customer’s perspective of utility received or from the producer’sperspective of specification satisfied? What if the producer’s specification is de-fined based on profitability alone? What if the specification is chosen because it isthat limit beyond which a customer might detect poor functionality at the point ofpurchase or before warranty termination? Is that good enough for a lean enter-prise? How does one resolve these problems?

Thus, this definitional issue is a fundamental problem for the lean communityand any serious business researcher. No science about any phenomenon—whether it is a natural phenomenon or a man-made one like a model for how to


conduct commerce—is possible if one cannot establish a single, common, opera-tional, and stable definition of what it is. Moreover, without science—that is, anestablished set of knowledge that describes, explains, and predicts the behavior ofthe phenomenon or guides the implementation of a model—no “model” can exist.“Lean thinking” becomes a euphemism for a set of tools and activities pursued bydifferent people for different purposes.

Gaps in the Lean Literature

As we have stated previously, our analysis of the lean literature concluded that thereare important questions left unanswered about the lean approach to commerce.Here, we will present more details about these gaps. But first, let us consider whatthe literature does cover.

What Is Covered

The existing literature offers guidance about business operations including itsproper goals and methods for improvement and about lean management, espe-cially as regards how to guide organizational success and manage people. By in-tegrating across writers, one can make the following assertions.

One commonly stated goal of operations is to eliminate waste and produce anoutput only when it is needed and in the amount needed. The elimination ofwaste is operationalized as a 100% value-added ratio. The value-added ratio isthe proportion of an operation’s total cycle time that is consumed by activitiesthat materially change a product or service output in a way for which a well-informed and reasonable customer is willing to pay. It is common to find thevalue-added ratio for most functions to be between 5% and 15% at the begin-ning of a lean initiative. Much is written to guide a person in identifying and re-moving waste. The literature offers a wide variety of tools and solutions tailoredto support both waste removal and continuous improvement (e.g., 6S, A3 prob-lem solving, Andon boards, Kaizen, SMED, standardized work, TPM, valuestream analysis, etc.). Producing only what is needed, when it is needed is op-erationalized as zero work-in-progress inventory (WIP) and zero finished prod-uct inventory. Operations are made to produce only what is needed, when it isneeded by making their processes flow10 and by establishing pull. Tools areprovided to assist in accomplishing these ends as well (e.g., Demand FlowTechnology [DFT], heijunka boxes, kanbans, supermarkets, takt time, etc.).

Another goal of operations is to continuously improve all work processes andworkplaces. This improvement of processes and workplaces is supposed to beanchored in a deep and continually improved understanding of customer val-ues and the company’s status in satisfying those values. Indeed, while sometypes of waste are self-evident (e.g., search, defects, interruptions), other types

10 Flow describes a work process in which work moves through it without interruptions or delays at apace that matches customer demand (takt). Establishing flow in every operation is a major objective atthe operating level in becoming a lean enterprise.


of waste can only be detected based on an understanding of what is importantto the customer (e.g., unnecessary work).

Some lean writers also emphasize that operations must affirmatively add valueand not just eliminate waste. Value is added to products and services by addingfeatures that customers seek and are willing to pay for and by improving exist-ing features that do not yet fully satisfy customers. Tools such as Design for Ex-cellence (DFX) and Quality Function Deployment (QFD) assist with addingvalue to products and services. Critical-to-quality (CTQ) metrics are used totranslate customer values into measures that can be used to ensure that prod-ucts and services satisfy customer expectations.

There is also a good deal written about “lean management” at least in terms ofhow a lean enterprise implements the executive functions of effectiveness andsufficiency. To ensure effectiveness, a lean manager manages from a systemperspective (value stream or extended value stream); uses measures to gaugethe status of its operations and results; strives to anticipate future customerneeds, not just respond to current needs; and develops the company’s directionusing knowledge derived from learning generated across the enterprise andfrom market and customer values research. Management deploys the compa-ny’s direction in a manner that maximizes the use of worker knowledge and en-ables synergy of efforts across the workplace. To this end, it uses a series ofinteractive meetings with the staff in each business function that cascade downto every work unit. In these meetings, the proposed direction is discussed andfine tuned, and its local application decided. The entire process is called HoshinKanri and involves people fully in business decision making. It enables thecompany’s direction to be implemented distributively, with every worker fullyengaged in performing his or her role and seeking ways to better their own per-formance, the performance of fellow workers, and the performance of the proc-esses and functions that they implement.

Sufficiency’s goal is to ensure that the people needed to realize the company’spurpose are present, capable, and performing effectively. To recruit, engage, andensure that people are successfully performing their needed roles, managementreverses the traditional role of the executive from director to enabler. It does notrely on manipulating people through external incentives or persuasion to winthe investment of effort from workers. Rather, management attracts and retainspeople by providing them the opportunity to grow in their capabilities,experience the pride of achievement, and advance in their roles. The leanmanager also ensures that the systems within which people work enable theirsuccess and maximally enable the achievement of the enterprise’s goals.


What Is Covered Less Well

The two weakest areas of development in the lean literature are the strategic as-pects of commerce and the theory that explains why lean, as a commercial ap-proach, should work. The strategic component of an approach to commercedefines the purpose of commerce and the long-term commercial and organiza-tional strategies that one implements to achieve that purpose. The theoretical un-derpinning of a commercial model is the set of assumptions that clarify therationale for the various ideas and edicts that constitute the model’s guidance.

Strategic Gaps

We have already discussed the absence of a definitive statement of the aim thatcommerce serves as viewed from the lean perspective and its consequences forunderstanding the lean approach to commerce. Those consequences make thisgap more than an esoteric concern.

We have also discussed the absence of guidance concerning how to structure alean enterprise and its consequences for implementing essential elements oflean commerce. Such guidance is one element in the strategic component of acommercial model.

The lean literature is markedly deficient in its elaboration of the competitivestrategies a lean enterprise should undertake. Certainly, one well rooted notionis that a lean enterprise competes in the marketplace by offering its prospectivecustomers better value than its competitors. Beyond that point, little to noth-ing is said about what other marketplace strategies a lean enterprise shouldand should not use to realize its success. For example, one approach to com-peting in a marketplace is to use control strategies such as creating barriers toentry into a market by potential competitors so that customer choice is lim-ited. IBM used this strategy to build its almost monopolistic control of the “bigiron,” mainframe computing market in the 1970s and 80s. It built into its sys-tems proprietary elements so that no one else could create software for its sys-tems, service its products, or build methods to enable an easy transfer from anIBM based system to a competitor’s system. As you will read later, Microsoftalso used the same strategy with regard to its Windows operating system. Cana lean enterprise use such a strategy? If not, why not?

Another example is to externalize costs. We will discuss this strategy later inmore detail but here is a simple example involving rework costs. Let’s say thata company attempts to reduce its rework costs by determining the likelybreakdown point for its product—essentially, its mean time to failure giventhe product’s existing state of quality. Despite knowing ways to improve theproduct’s mean time to failure, the company chooses for cost and profitabilityreasons to adjust its warranty period. It reconfigures the period of its warrantyso that there is little chance that a product failure will occur within the war-ranty period. By doing this, the company externalizes the cost of rework. This


means, rather than it paying for the product’s failure, it arranges matters sothat the buyer pays. Can a lean enterprise use such a strategy? If you say “No,”then what if the lean enterprise is low on funds and can’t afford to make im-provements in its product? Would it then be acceptable? If so, why?

Another control strategy producers use involves withholding informationfrom customers that might negatively affect one’s sales or profits. Tobaccocompanies used this strategy to sustain their sales of cigarettes for decades(Levin, 2006). Can a lean enterprise use this strategy? If not, why not?

Foundational Knowledge Gaps

The second significant area in which the lean literature is deficient concerns anexplicit statement of the basic theory that explains why the actions directed bythe model make sense. As with all commercial approaches, this theory is rootedin the model’s assumptions about the nature of people and the context withinwhich commerce occurs.11 For example, lean literature lacks a discussion of themotive force that propels people to engage in commerce. Again, that may soundesoteric, but it is not. It has important practical significance. For one thing, amodel’s definition of the purpose that commerce serves derives from its as-sumptions about the fundamental motives and ends that drive human behavior.Further still, as discussed above, it is from a model’s definition of the purposecommerce serves that it derives its strategic, operations, and managementguidance.

The prevailing capitalist approach to commerce explicitly makes assumptionsabout human motivation and the ends people pursue.12 Its view of people’s na-ture is that they are driven to accumulate greater and greater wealth and thattheir focus is on their personal gain exclusively. From this assumption, themodel deduces that the purpose of commercial activity is to maximize personalgain from every transaction. Adam Smith, for example, envisioned that unfet-tered self-interest would evolve into a collective good by virtue of God’s design.His religious beliefs made him confident that the principles embedded in God’screation, as a reflection of God, would exert an invisible influence that guidedthe whole of individual actions based on self-interest to produce the collectivegood (Hosseini, 2010; Kilcullen, 1995).13 A non-religious version of this

11 Chapter 4 The Foundations of Every Commercial Model explains in detail the logic supporting thisassertion.12 For many readers, the discussion of the lean approach to commerce as something different from capi-talism will seem strange, if not bizarre. Based on our experience and study, all lean practitioners andwriters appear to view lean simply as a different way of conducting a capitalist enterprise—much as peo-ple viewed the Quality approach to commerce introduced by W. Edwards Deming. This view, however,becomes untenable once you expose fully the lean model and explore the deeper knowledge that under-pins its principles, methods, and objectives. In Part 1 of this book, we fully explore this issue and its im-plications. For now, we ask your indulgence.13 As Perelman (1984) writes, anyone making a definitive statement about Adam Smith’s views is onshaky ground. His extensive writings are replete with statements that are in opposition to other state-ments he makes. This religious perspective on how self-interest in commerce results in producing the


thinking assumes that each participant in every commercial transaction is ra-tionally driven, capable, and fully informed with neither party having powerover the other. Given these conditions, each party operating from self-interestpresses for maximum gain. Since the model assumes that no party has leverageover the other, a mutually beneficial resolution of each transaction is realized.That resolution leaves each party less than fully satisfied, but satisfied nonethe-less; otherwise, they would not conclude the transaction. The desire to accumu-late more wealth leads each person to reinvest his or her “capital” in new acts ofcommerce. This is the presumed dynamic of capitalism. It rationalizes why peo-ple should be unfettered in their pursuit of profit. If the “natural” working ofself-interest is interfered with, the collective benefits it produces will be compro-mised. It is also the basis of the caveat emptor principle of commercial transac-tions. Each person is responsible for looking out for his or her ownself-interest.14

What are lean enterprise’s assumptions about people and the commercial con-text? How does lean thinking replace the capitalist assumptions that people op-erate from self-interest and possess a singular focus on maximizing personalgain? One possible response is that there is no need to replace them. “Benefitingothers will create the ultimate benefit for oneself.” This “rational self-interest”response, however, does not withstand real-world, rational analysis. The simpletruth is that if I am driven to maximize personal gain in this world, I will seekout a way to get all I can from every exchange I make with another. Only in thisway do I maximize personal gain. Hence, based on the self-interest model, youshould and would search out and use methods that accomplish the redistribu-tion of benefits you seek. And, those methods both exist and are in use.

Some may say, “but those methods will only work in the short run.” There are atleast two problems with this logic. First, the time horizon for “self” is, by defini-tion, the length of one’s adult life. Arguments relevant to self-interest that re-quire a person to reap gains after his or her lifetime are, by definition,nonsensical since they imply that self-interest persists past death. Even if Isought to include my progeny in my decision making, plenty of examples existthat demonstrate the feasibility of amassing and passing down wealth generatedby pursuing commerce with others only with the intent of benefiting my self-interests exclusive of benefiting the other parties with whom I complete com-mercial transactions (Carnegies, Morgans, Rothschilds, Rockefellers, etc.) (Phil-lips, 2002).

greater social good appears in his work, Theory of Moral Sentiments. Within his Wealth of Nations he ar-gues in one place that commerce must be unfettered and that the rational inclinations of each individualwill result in a positive outcome for all. Elsewhere in the same work, however, he seems to argue thatgovernmental control will be needed to prevent the emergence of monopolies. Similarly, while his pre-dominant statements suggest the benign intent of the wealthy, he also speaks of their tendency to exploitothers less powerful for their own pleasure or gain. 14 A more complete look at the underlying premises of capitalism appears in Chapter 4 The Foundationsof Every Commercial Model.


Second, factually it is not true that one cannot continue to exploit others in acommercial context over the long-term. As Barnard (1968) describes, people’scompliance with your purposes can be obtained through the exertion of the per-suasive power of force and threat, as in slavery or in the expropriation of otherpeoples’ resources. Slavery on the American continent enriched agriculturalproducers for more than 200 years. The lands largely expropriated from indige-nous peoples through force continue to enrich the nation’s commercial pur-poses. Also clear is the fact that producers can, through the use of inducements,elicit from political persons laws favoring them. Historically, these means haveenabled the significant accumulation of wealth or capital (Perelman, 1984; Phil-lips, 2002, 2009). For a recent example of extracting more while giving less, con-sider the contributions unsafe sweat shops in Asia have made to the bottomlines of companies such as Apple, Nike, Walmart, and Calvin Klien.15 Underthe threat of no employment, dangerous and exploitive employment becomesacceptable. Clearly, the means for getting more and giving less are real, used,and economically successful.

Two Ways to Overcome Barriers

There are at least two ways to approach overcoming the barriers to documenting adefinitive representation of the lean model. One is to use a consensus view of leanscholars to resolve which differing viewpoint on a topic properly expresses leanthinking. Another is to use a “go-by” example to extract guidance that is currentlymissing in the lean literature. Each of these solutions, however, is problematic.

Using a Consensus View to Resolve Inconsistencies

Two conditions must be satisfied for anyone to derive a consensus view when ex-isting sources disagree. First, one needs a definitive list of true experts on the top-ics to be resolved. Second, the named experts must address the same list of topicsso that a rule-based sense of the group can be concluded. Both these conditionsare failed as regards lean enterprise.

The community of lean writers and practitioners is very large. However, there isno definitive list of who in this community is a true “lean expert” nor is thereagreement on a reasonable criteria for determining who they are. That commu-nity has no recognized formal institution that certifies who is an ‘authentic anddefinitive’ expert on lean enterprise. Further, none of the people who might beconsidered by some as “experts” are actually “authors” of the lean system. Their“expertise” is largely based on their personal experience and study of selectedpractices of the Toyota Motor Company and, especially, the Toyota Productionsystem.16 In that sense, they are more “scholarly observers” reasoning about the

15 See, for example, Brown (2001), Duhigg and Baboza (2012), and Greenhouse and Yardley (2012).16 The study that led to the writing of the The Machine That Changed the World (Womack, Jones, andRoos, 1991) actually involved manufacturers from around the world, not just Japanese firms. However,Womack and his associates concluded that Japanese companies in general and the Toyota Motor Com-pany specifically was the most complete example of a company employing the most effective methods for


meaning of the facts they have reported. As we show later in this chapter andmore extensively in Chapter 6, there are serious problems with considering theToyota Motor Company as the originator or archetype of lean enterprise.

As regards the second condition, the most recognized contributors to the lean lit-erature tend to focus on a sector of thinking they feel is either neglected or other-wise important to elaborate. Liker and Emiliani, for example, focus onmanagement and executive functions. Shook and most other authors emphasizethe continuous improvement of operations at the gemba.17 Ohno, a presumed pri-mary source, also focused on the gemba. While most of these authors addressother aspects of lean, they do not all address the same issues. Those sources thatare most comprehensive in their presentations (e.g., Imai,18 Womack and his as-sociates) are immensely informative but—as our experience showed—they do notsingularly or collectively address all the topics and issues that need to be ad-dressed to completely describe the lean approach to commerce. Hence, the full ar-ray of thinking never appears in any one source nor can you correlate views acrossa wide sample of sources on a number of the key elements that constitute a com-mercial model.

Using a “Go-By” to Fill in Gaps

A second method one may use to fill gaps in procedural knowledge is to use a “go-by.” A “go-by” is a real-world example of how a situation should be handled pro-vided by someone or some organization that is judged to be an exemplar.19 Thus,on issues like whether to use or not use a particular competitive strategy (createbarriers to entry, externalize costs, or withhold negative information from thepublic), many in the lean community turn to the Toyota Motor Company’s prac-tices as their “Rosetta Stone” for deciphering what is and is not lean. In doing so,what we find is that Toyota has used control strategies to externalize costs and ad-vance profits. Specifically, it withheld information about product’s defects fromcustomers and government regulators so as to protect its profits by avoiding therecall that knowledge would have provoked. Thus, it off-loaded the costs of poorquality to its customers who were left to pay for repair of the defect and any otherdamages it might cause. Based on public records, we can say that it practiced thesetwo strategies during the period of 1995 through 2010. The first example concernsToyota’s handling of the steering mechanism problems with their Hilux Surfs and4Runner vehicles in the 1990s. The second example concerns how it addressed its

implementing automotive manufacturing. 17 Shook’s more recent writing shifted in focus to management (Shook 2013a, 2013b, 2013c, 2014).18 Imai is not commonly identified as a resource for understanding lean thinking—yet, his work, Kaizen(Imai, 1986) describes purposes, methods, and tools that fully align with those described in lean litera-ture. It appeared before the work of Womack and his associates and was also based on the study of Japa-nese companies.19 The “go-by” method has no relevance for filling in absent foundational knowledge since case analysisonly reveals what was done and how it worked but not why it worked. It can, however, be useful in decid-ing what to do when faced with a similar problem or choice.


vehicles’ unintended acceleration problem and two related problems with gaspedals installed in various models in the 2000s.

Hilux Surfs and 4Runners

With regard to the seriousness of the Hilux Surfs and 4Runner’s steeringmechanism problem, the most publicized incident caused by the defect oc-curred in Japan. It involved the crash of an out-of-control Hilux Surf resultingin serious injury to five people. A police investigation into this accident trig-gered a scandal that provoked Toyota to acknowledge the problem and recall330,000 affected Hilux Surfs and 4Runners in Japan. This public acknowledg-ment and recall occurred in 2004 —yet, as the facts make clear, Toyota wasaware of the problem with the Hilux Surfs and 4Runners from the beginning of1996. At that time, “Toyota engineers discovered that a crucial steering mecha-nism could fracture on the Hilux Surf, which was sold as the 4Runner in theUnited States” (Kanter, Maynard, and Tabuchi, 2010). While it corrected theflaw in 1996 models, Toyota took no action to alert the owners of the 1995 andearlier models of the danger. After Toyota received a rebuke from the Japanesegovernment in 2004, it executed the recall in Japan but not in the U.S. for its4Runner model (Kanter, Maynard, and Tabuchi, 2010). Thus, it left its Ameri-can customers at risk of harm and bearing the cost of repair for the defect andany damage its failure caused.

Further, other Toyota truck models sold in the U.S. (e.g., Toyota 4x4 and T100pickups) used the same linkage, a steering relay rod, as found defective in Japan.Nonetheless, Toyota told the National Highway Traffic Safety Administration(NHTSA) in October 2004 that it would not conduct a recall in the U.S. becauseit had not received information here indicating a problem with the part. Thisapparently was a lie. As later reported in the LA Times, “Documents enteredinto four lawsuits filed in Los Angeles ... revealed that Toyota had received nu-merous consumer complaints dating from 2000” about linkage problems withits Toyota 4x4 and T100 pickups (Bensinger and Vartabedian, 2009).

Unintended Vehicle Acceleration

As to unintended sudden acceleration and gas pedal problems, the first instancewas uncovered in 2003. Internal Toyota documents, discovered during a courtcase, revealed that earlier in the year a company technician described a case ofsudden, unintended acceleration in a Toyota model in 2003. According to acourt document filed in U.S. District Court in California in 2010, the technician“requested immediate action due to the ‘extreme dangerous problem’ and [said]‘we are also much afraid of frequency on this problem in the near future’”(Whoriskey, 2010). Later in the year, routine testing revealed that the Siennaminivan had a problem with a part which could come loose causing the gaspedal to stick potentially causing unintended acceleration. Toyota redesignedthe part and installed it in 2004 models, but chose once again not to tell owners


who bought the earlier version of the vehicle about the problem. In 2009, wheninvestigations revealed what Toyota had done, it justified its action on the basisthat “a safety recall was not justified” and the corrected part was simply “anadded safety measure” (Bensinger and Vartabedian, 2009).

Yet another problem with gas pedals was uncovered in 2008 in Europe. Toyotaresponded by making a design change in the summer of 2009 in the manufac-turing of cars in Europe going forward, but not elsewhere. No recall of alreadysold cars occurred in Europe because the company considered the problem a“consumer satisfaction” issue. Then, almost a year later, after the problem waspublicly exposed in the U.S., a recall was issued. As to the U.S. recall, Toyotaclaimed that it did not issue it earlier because it just discovered the gas pedalproblem in the U.S. despite records that showed it modified the same pedal to ad-dress the same problem in Europe the year earlier (Kanter, Maynard, and Tabu-chi, 2010).

Across these actions, Toyota externalized the cost of defects in its cars by off-loading it to customers in terms of risk, injury, and personally funded repairs. Itcontrolled the information flow about the problem in various countries until itwas ‘outed.’ Why? Clearly, recalls are costly and potentially impact sales therebydeflating profit. This suggests that maintaining or increasing its profits out-weighed concern for customers. Pure speculation? Then consider the July 2009presentation of achievements that was made by Toyota staff to Yoshimi Inaba,then Executive Vice President, Member of the Board and Chief Officer of theNorth America Operations Group. On a slide entitled, “Wins for Toyota --Safety Group,” U.S. Toyota executive’s “boasted of saving hundreds of millionsof dollars by getting the federal highway safety regulators to limit the scope ofrecalls” for floor mats in some Toyota and Lexus vehicles (Maynard, 2010a;CNBC, 2010). The floor mats could cause unintended acceleration (Valdes-Dapena, 2010).

In 2010 testimony to the U.S. House Oversight and Government Reform Com-mittee, Mr. Inaba implicitly admitted that he was briefed on the Safety Group’s“success” when he stated that he could not remember the meeting where he wasbriefed on the memo “with any depth” (Bensinger and Vartabedian, 2010).Other “wins for Toyota” lauded in the same presentation were a $124 millionsavings reaped by winning a phase-in to new safety regulations for side air bagsand an $11 million savings reaped by delaying a rule for tougher door locks(Thomas, 2010). Also credited as wins were “Avoided investigation on Tacomarust’ and helping win delays in various new federal safety regulations” (Valdes-Dapena, 2010). In response to the revelation of this presentation, a Toyotaspokesperson said, “Our first priority is the safety of our customers and to con-clude otherwise on the basis of one internal presentation is wrong. Our valueshave always been to put the customer first and ensure the highest levels of safety


and quality" (Thomas, 2010). The fact that this internal presentation was madeto an executive officer and member of the board of Toyota (Yoshimi Inaba)without the least concern for reprimand for being unaligned with Toyota’s “firstpriority” was not explained.

If you believe that the conduct described above was simply an aberration basedon “Toyota losing its way,” consider the documentation in Appendix B. It de-tails a long sequence of behaviors that violate the fundamental concepts of re-spect for people, inclusiveness of concern for all stakeholders, and listening tothe voice of the worker, among others. It stretches credulity to conclude thatsuch violations of its supposedly deepest core values were simply transient mis-takes caused by distraction. Further, despite the revelation of that “safety wins”presentation—as of 2015, Yoshimi Inaba remained executive chairman of Toy-ota Motor Sales, U.S.A., Inc. and continued to serve as an executive advisor ofToyota Motor Corporation. Akio Toyoda, the current head of Toyota, stated in2010 that Mr. Inaba has his "highest personal trust" (Masters, 2010).

Based on the 15-year long conduct of our “Rosetta Stone” that says that strate-gies such withholding information vital to the safety of customers and external-izing costs of poor quality are part of an acceptable lean enterprise competitivestrategy, how many of us in the lean community are comfortable with this con-clusion? To move past ‘comfort’ and answer on a sounder basis whether it is oris not part of the lean model requires us not to use the history of behavior of acompany but knowledge-based discriminations drawn from a properly repre-sented lean commercial model.

Resolving What the Lean Approach to Commerce Is

Given our understanding of the nature of the barriers to describing the lean modeland their root causes, we generated the following path to resolve our dilemma. First,we built a framework for describing a commercial model. Next, we:

1. populated that framework with the content provided within the lean litera-ture—including conflicting elements,

2. normalized the descriptions of the lean model by retaining elements within eachframework topic that were empirically and logically consistent with one anotherand discarding those that were not,

3. added to the model the elaborations we had developed as we documented leantools and resolved issues concerning their proper use,

4. re-tested the model’s content for logical consistency, and

5. documented fully the lean model that resulted.


Building the FrameworkAt its core, a framework or schema is a structure of topics that must be addressedfor the description of a phenomenon to be complete. In that sense, it acts as a men-tal “jig” (in a manufacturing sense) that ensures that we completely describe eachinstance of the phenomenon the framework represents. A properly developedframework does even more. It contains not just a schema of topics but includesguidance that enables the documenter to populate each element with the correctcontent. It also contains guidance explaining the relationships between elements.This guidance allows the documenter to check the internal consistency between thevarious elements of content he or she records. For example, Exhibit 6 presents asimple schema for documenting a goal statement. It identifies that a goal has five

Exhibit 6. The Components of a Complete Goal Statement

Component Contents

To States the result the goal must produce. Always begins with “To,"identifies the object to be transformed, and the final state itshould be in when the goal is realized.

For States for whom the result is being produced—the beneficiariesof the goal.

By Names the task or process that will accomplish the “To.” The bymust be capable of accomplishing the “To”; otherwise it is notvalid.

So That Lists the benefits the result should produce for each beneficiary ofthe goal. Each benefit identifies how a beneficiary of the goal willbe better off once the “To” is achieved. Every benefit listed mustbe producible by the “To” and must represent a result that advan-tages a particular beneficiary. Every identified beneficiary musthave a benefit identified for it.

Conditions States other requirements the pursuit of the goal must satisfy.These may:

limit resources used (e.g., time, money, people), require a performer to do certain actions—e.g., use a certain toolor involve specified people or abide by a certain protocol inpursuing the goal, orset as "off-limits" certain decisions or actions.

Once conditions are set, recheck the “To” and “By.” The “By” mustbe able to accomplish the “To” while satisfying every conditionand delivering every specified benefit.

SuccessCriteria

The benchmarks that must be met for the goal to be judged asachieved. Must include criteria that test whether the effortsexpended:

produced the result specified in the “To,”

delivered the benefits specified in the “So That,” and

satisfied the constraints recorded in the “Conditions.”


components, tells you what content goes into each component, and provides guid-ance for testing the goal’s internal consistency—e.g., whether the content in the“Benefits” component is correct and complete based on what is recorded in the“To” and “For” components.

A framework, therefore, serves as (1) a prompter to remind one what content tocollect and record, (2) a guide for ensuring the content is recorded in the correctplace, (3) a check for judging when one’s work is complete, and (4) a testing deviceto ensure all content is logically consistent.

Another use for a framework is in assessing the completeness of thinking in a par-ticular field of study (a domain). Assuming that you have exhausted the source ma-terial available in describing the capitalist economic model, then elements leftunpopulated in its framework are areas of the domain that economists have not yetdeveloped.

A framework also serves learning. The visual representation of the framework be-comes a mental organizing tool that facilitates acquiring, retaining, and recallingthe content that populates each of its elements.

Finally when populated and shared in a communal context, like a field of science, itallows various representations of the same theoretical model to be shared and com-pared. People can determine their alignment with one or another version of themodel, discuss the differences between versions, and resolve discrepanciesrationally.

Clearly, frameworks are powerful tools for discovery, documentation, verification,knowledge advancement, teaching and learning, and consensus building within afield. The absence of such a framework is one reason why the descriptions of leanenterprise are fragmentary and inconsistent. It is also a reason why the most com-prehensive presentations leave the student unable to see the whole and how all theelements of the lean approach to commerce fit together.

Chapter 1 presents a framework for describing a commercial model. It applies toany existing or proposed commercial model—whether it is capitalism, lean enter-prise, Deming’s Quality model (Vitalo, 2016), the B-Corporation model (Rosen-berg, 2011), the Islamic approach to commerce (Ahmad, 2004), or the Valveapproach (Varoufakis, 2012).

Documenting the Lean Model

Using the stepwise process we described above (page 28), we populated the frame-work for the lean enterprise commercial model. Chapters 2, 3, 4, and 5 present, indetail, the results of this effort. We also clarify in these chapters how the lean ap-proach to commerce differs from the dominant producer focused, profit maximiz-ing model.


Is the Model We Present Really the Lean Approach toCommerce?

We are not authorized by anyone to make that judgment. We believe that the meth-odology we used makes an affirmative answer to that question credible. We can saythat it is populated in the main by the writings of lean scholars, comprehensive inits coverage, internally consistent and, if implemented, will accomplish the aim de-fined within it in a manner that satisfies all expectations inherent in the model. Wecan also say that it is externally consistent with the scholarly knowledge that under-pins key elements of the model (e.g., performance of executive functions, the role ofemployees). But, we cannot say whether the lean community will adopt this de-scription as the official presentation of the lean model. If it does not, then we wishto make this clear.

If the model presented in this book is not accepted as the lean approach to commerce,the model remains a legitimate approach to commerce nonetheless.

Hitchhiking on some ideas shared by Womack, one might consider naming it the“Value Creation” approach to commerce in that its intent is to continually createvalue, expand opportunities for commerce, and enable the realization of social, notjust economic aims. Indeed, even if our representation of the lean approach to com-merce is accepted by the lean community, perhaps the community should relabelthe lean model as the value creation approach so that it better communicates whatour approach to commerce is about.


Task 1 Focus the Lean InitiativeStep 1.1 Understand Your Task

The Components of a Task

Getting Task Information

Deciding the Type of Lean Implementation Requested

Step 1.2 Profile Candidates for Lean Implementation

Identifying a Business

Profiling a Business

Profiling a Suborganization

Step 1.3 Assess Candidates for Lean Implementation

Choosing a Business for a Pure Form Lean Application

Choosing a Suborganization for a Limited Lean Implementation

Step 1.4 Define the Path Forward for the Lean Initiative

The Components of a Direction Statement

Building a Direction Statement

Describing How Employees Participate in the Initiative

Step 1.5 Assess the Feasibility of Success

Assessing Whether a Pure Form Lean Application Will Succeed

Assessing Whether a Limited Lean Implementation Will Succeed

Task 2 Involve StakeholdersStep 2.1 Know About Stakeholders

What the Term “Stakeholder” Means

Why Stakeholders Are Important

12 Guidelines for Involving Stakeholders

Caveat and Insight

Step 2.2 Identify Stakeholders

Identifying Possible Stakeholders

Recognizing Actual Stakeholders

Appreciating Each Stakeholder’s Importance

Step 2.3 Understand Stakeholders

Knowing the Key Components of a Stakeholder’s Perspective

Building a Stakeholder Profile

Using a Stakeholder Profile

Step 2.4 Engage Stakeholder Action

Following Through on Employee Involvement

Planning Stakeholder Involvement

Constructing a Stakeholder Communications Plan

Step 2.5 Sustain Stakeholders’ Support

APPENDIX A: TOOLS PRESENTED IN VOLUME 2 A-1

Task 3 Understand Customer ValuesStep 3.1 Know the “What” and “Why” of Customer Values

What Customer Values (CVs) Are

Why CVs Are Important

How CVs Are More Than Requirements

Not All CVs Have the Same Importance

Every CV Must Be Made Observable and Measurable

Value Has a Limit With Regard to Price

Why You May Never Approach The Upper Limit to Price

Step 3.2 Learn Kano’s Categories of Customer Values

Kano’s Categories of Customer Values

Step 3.3 Define Value From the Customer’s Perspective

Building Values Frameworks

Capturing the Voice of Your Customer

Walking in Your Customers’ Shoes

Completing a Customer Values Survey

Completing a Kano Survey

Maintaining a Customer Values Repository

Step 3.4 Use Your Customer Knowledge

Using Your Knowledge of Customer Values

Task 4 Lead TeamsStep 4.1 Plan Team Meetings

Creating a Team Charter

Deciding If a Meeting Is Needed

Writing the Goal for a Meeting

Preparing for a Meeting

Step 4.2 Conduct the Meeting

Opening the Meeting

Establishing Ground Rules

Facilitating the Meeting

Communicating in Meetings

Dealing With Problematic Behaviors

Managing Differences

Getting the Team Back on Track

Taking Notes in Meetings

Closing the Meeting

Step 4.3 Evaluate the Meeting

Completing a “Plus/Minus” Evaluation

Conducting the Meeting Power Scale Assessment

A-2 VOLUME I CRITICAL KNOWLEDGEAPPENDICES

Step 4.4 Follow Up After the Meeting

Writing Meeting Minutes

Sharing Results and Checking Progress

Task 5 Participate in TeamsStep 5.1 Prepare for Meetings

Getting Ready Before Meetings

Getting Ready at Meetings

Step 5.2 Contribute in Meetings

Connecting With Meeting Activities

Getting Informed

What Is It?ClarifyingConfirming

Giving Information and Ideas

What Is It?Constructive CriticismHitchhiking

Abiding by Ground Rules

Step 5.3 Follow Up After Meetings

Supporting the Team’s Success Post Meeting

Task 6 Solve ProblemsStep 6.1 Understand Problem Solving

The “What” and “Why” of Problems and Problem Solving

Methods of Problem Solving

Solving Business Problems

Preferred Approach in Business SettingsUsing Layered ApproachesAdditional Examples of Layered Approaches

The Issue of Problem Solving Effectiveness

Four Factors Decide SuccessCharacterProficiencyPlanningFollow Through

Recognizing Lean-Compatible Approaches

Leverage Your Understanding of Problem Solving

Step 6.2 Focus Problem Solving

Understanding the Inherent Hierarchy of Problems from a Lean Perspective

Identifying Problems From Measurement Information

Identifying Problems From Your Customer Values Information

Deciding If an Ad Hoc Problem Is Appropriate to Tackle

Using Criteria Ratings to Prioritize Problems

Using Ranking to Prioritize Problems (N/3)


Planning Your Problem-Solving Effort

Step 6.3 Describe the Problem

Qualitative Tools

Preparing a Detailed Problem Description

Writing a Brief Problem Statement

Tools for Quantitatively Describing Problems

Using Check Sheets

Using Other Quantitative Tools

Using a Study to Gather Problem Information

Step 6.4 Uncover Root Causes

Knowing Factors That Affect the Outcome of Performance

Qualitative Tools

Questioning “Why?”

Using Fishbone Diagrams

Quantitative Tools

Doing an Experiment

Step 6.5 Develop Solutions

Asking an Expert

Brainstorming

Profiling a Solution

Conducting a Pilot

Step 6.6 Take Action

Plan, Do, Check, Act (PDCA)

Developing an Action Plan

Testing the Sequence of Steps in a Plan

Producing a Gantt Chart

Step 6.7 Lean Tools as Problem Solving Methods

Task 7 Make DecisionsStep 7.1 Identify the Goal of the Decision

Writing the Decision Goal

Step 7.2 Use Information to Make a Decision

Generating Choices

Defining Decision Criteria

Evaluating Alternatives

Concluding Which Choice to Implement

Step 7.3 Use Knowledge to Make a Decision

Acquiring Decision Knowledge

Applying Decision Knowledge


Task 8 Coach PeopleStep 8.1 Profile a Role

Understanding the Components of a Useful Role Profile

Building a Profile

Writing Performance Standards

Using a Profile to Support Performance

Step 8.2 Identify Strengths and Development Needs

Building a Role Assessment Inventory

Assessing Performance

Doing a Cause Analysis

Addressing Development Needs

Step 8.3 Provide Feedback and Guidance

Giving Effective Feedback

Crediting

Building a Coaching Statement

Offering Coaching

Step 8.4 Broker Assistance

Brokering Assistance

Step 8.5 Train

Preparing to Train

Conducting Training

Evaluating Participants’ Reactions to Training

Step 8.6 Support Self-Directed Learning

Developing a Learning Plan

Task 9 Measure PerformanceStep 9.1 Understand Measurement

What a Measure Is

The Focuses of Measurement

The Perspectives Measures Assume

The Granularity of Performance Measured

What Determines Whether a Measurement System Is Functional?

Ensuring Measurement System Integrity

Measures Are Not Enough

Knowing What Measures Matter

Measures That Add ValueMeasures That Drive Decision Making

How to Use Your Knowledge of Measures


Step 9.2 Align Measures With the Business’s Strategic Intent

Understanding Success Criteria

Building a Functional Business Measurement System

Building the Lean Initiative’s Measurement System

Understanding Management Dashboards

Step 9.3 Assess In-Place and Lean-Developed Measures

Knowing the Characteristics of a Sound Measure

Assessing the Soundness of Measures

Aligning Business Measures

Step 9.4 Refine and Document Measures

Building Favorability Scales

Documenting Success Criteria and Measurement Procedures

Step 9.5 Make Measurements—Look, Listen, Ask

Using Checklists

Observing People, Places, Things, and Activities

Listening to What People Say

Asking for People’s Thinking

Step 9.6 Record Findings

Recording the Results of a Survey

Recording Observations and Judgments

Task 10 Learn and ShareStep 10.1 Status, Reason, Learning, Direction (SRLD™)

The Default Approach to Learning

The SRLD™ Approach to Learning

The SRLD™ Process

Sustaining Improvements: An Application of SRLD™

Step 10.2 Share Direction and Report Findings

Establishing a Lean Initiative Intranet Subsite

Completing the Lean Initiative Weekly Update

Step 10.3 Do Briefings

Conducting Status Briefings

Step 10.4 Share Learning

Leveraging Learning


Introduction

The history of decisions and actions by Toyota executives has always included de-viations from the lauded “Toyota Way.” For example, Liker and Hoseus (2008) re-port that Taiichi Ohno, credited by some as the author of the Toyota ProductionSystem (TPS), “was an unusually aggressive leader ... . He believed in teamwork but,in many ways, he was more of a dictator than a team player. Ohno would alwaysgive credit to the team, but he was extremely strong willed ... . No one would standin his way. Many of his actions created disharmony at Toyota and are very counterto the desire for harmony and consensus” (p. 25). The authors add that “There aresimilar stories in product development and sales. For example, in product develop-ment, the main driver of innovation and of achieving aggressive targets is the chiefengineer who has a very strong personality (ibid).” Clearly, this seems more akin toa Taylorist approach to improvement than the “lean” approach.

Rather than study the more distant past, the focus of this analysis is the company’sbehavior during the period 1995–2010 (Exhibit B1, beginning on the next page).This period offers an unusual window into Toyota’s actual executive practices be-cause there was a significant increase in investigative news coverage of the ToyotaMotor Company. Also, the discovery processes of a number of lawsuits againstToyota became known and facts previously unrevealed were available for publicscrutiny. As a result, many revelations emerged about executive actions that hith-erto had not been reported. Both before and after this period, news coverage re-verted to reporting traditional business performance information. Thus, we have noway to assess whether conduct similar to that reported in Exhibit B1 existed before1995 or after 2010. Nonetheless, 15 years is a long period of performance. The fac-tual occurrences revealed are many and the pattern conduct in relation to custom-ers, employees, and the community at large appears highly consistent. Given itslength of occurrence and the consistency of performance that significantly deviatesfrom the declared values and practices of the company, it seems highly unlikely thatit this pattern of conduct emerged de novo in 1995. Indeed, all the major players inthis historical record had long and significant careers in the Toyota Motor Com-pany prior to 1995.

APPENDIX B: TOYOTA'S EXECUTIVE ACTIONS AND RELATED EVENTS 1995–2010 B-1

Exhibit B1. Toyota's Executive Actions and Related Events 1995–2010

Year Event

1995 Hiroshi Okuda is named chief executive officer (CEO). He is one of three “pro-fessional managers” who reportedly seek to neutralize the influence of theToyoda family as they chart what they considered a new and improved direc-tion for the company (Shirouzu, 2010). These managers included Mr. Okudaand Toyota’s next two CEOs—Fujio Cho and Katsuaki Watanabe.

1996 Mr. Okuda and aides unveil a new strategy dubbed the "2005 Vision." Itfocuses on financial achievement—growing rapidly while relying less onexports and more on factories producing locally in target markets (Shirouzu,2010). The Vision also pushes Toyota “to implement kakushin, orrevolutionary innovations, in vehicle design and manufacturing.” It includes“efficiency drives to reduce costs, not only through conventional means, suchas simplifying designs and using cheaper materials, but also by changing theway cars are engineered. For example, engineers [are] pushed to combinefunctions into fewer parts and systems. Their aim: cut the number ofcomponents in a car by half” (Shirouzu, 2010).

A “Global Profit Management Plan” is adopted by top executives. It assigns tosales executives around the world specific profitability goals (Shirouzu, 2010).As part of their implementation of this plan and the subsequent Vision 2010,the succession of nonfamily CEOs later acknowledge that they hired a largenumber of inexperienced contract engineers across a 10-year period as ameans to cut cost and support their rapid growth agenda (Shirouzu, 2010).

Toyota engineers discover that a crucial steering mechanism componentcould fail on the model it sold as Hilux Surfs in Japan and 4Runner in the U.S.It corrected the flaw in future models but took no action to alert existingowners of the danger.

1998 Design-to-market is sped up. A “newly designed auto can be on the market in18 months” (Clark, 2008). According to Peter Boardman of UBS Securities, Ltd.,one reason for Okuda’s success is that he set results targets for employees andmotivates upper management to realize them by giving them stock optionscontingent on realizing their targets. Using “results” targets and ‘carrot andstick’ motivating methods is not usually considered part of the Toyota Way.Also, focusing solely on results and not equally on process from whichlearning can be derived is a significant deviation from the Toyota Way (Imai,1986; Liker, 2004).

Mr. Okuda characterizes himself as “always interested in changing thesystems—in destroying.” Later, when asked to define his own personality, hereportedly responds, “Destructive isn’t it? Because I am always destroying theexisting order or existing systems. I don’t want to stay in the same place. Thatapplies to myself and to Toyota” (Clark, 1998).

1999 Fujio Cho becomes Toyota’s new CEO. Mr. Okuda becomes chairman andpresident of Toyota Motor Corporation. Mr. Cho is later credited withaccelerating the growth thrust initiated by Mr. Okuda (Lewis, 2010).

Cho names Yoshimi Inaba as president and CEO of Toyota Motor Sales (TMS),U.S.A., Inc. Mr. Inaba is described as “blunt-spoken.” He is “a marketer, not anengineer; under Mr. Inaba, the American Toyota was slowly moving awayfrom consensus management and toward more rapid decision making”(Lewis, 2010). (‘More rapid decision making’ is sometimes a euphemism forunilateral decision making.)

Continued ...

B-2 VOLUME I CRITICAL KNOWLEDGE APPENDICES

Exhibit B1. Toyota's Executive Actions and Related Events 1995–2010 (continued)

Year Event

2000 Mr. Okuda, then chairman and president of Toyota Motor Corporation,publicly shares his belief that Toyota needs to move beyond the Toyodas.He tells the Wall street Journal in a 2000 interview, “The Toyoda family willeventually become a 'shrine' to the company’s foundation, to which wewill pay respect once a year” (Shirouzu, 2010). Asked about the futureprospects for Akio Toyoda, then a 43-year-old general manager, Mr.Okuda states: ‘Nepotism just doesn't belong in our future.’ He elaborated:‘Akio-class talents are rolling around all over Toyota, like so many potatoes’"[italics added] (Shirouzu, 2010). No one asked Mr. Okuda how such anattitude aligned with Toyota’s fundamental principle of “respect forpeople.”

Toyota begins phenomenal period of sales growth adding 600,000 newcar sales per year (Shirouzu, 2010). But quality begins to flag. Toyotabrand ranks fourth in quality rankings by new car owners while its Lexusmodel is ranked first by used car owners (Shirouzu, 2010). As well, Toyotabegins a phenomenal period of increasing worldwide automobile recalls.2001 has three times more recalls than 2000. (Shirouzu, 2010).

A Missouri state judge sanctions Toyota for failing to disclose results offive rear-impact tests of Corollas “despite numerous discovery requests”(Bensinger and Vartabedian, 2009).

2001 Katsuaki Watanabe, Toyota’s next CEO and current head of purchasing, be-gins an effort to squeeze one trillion yen out of its parts purchasing. “Withtwo colleagues, he pushed Toyota and its parts suppliers to tweak the waythey designed and made 173 components and systems to make them sim-pler and less expensive without affecting quality. The initiative was dubbed‘Construction of Cost Competitiveness for the 21st Century.” Mr. Watanabereported that his effort was provoked by a benchmarking activity that re-vealed, paradoxically, that Toyota paid less than its competitors for slightlymore than 50% of its purchased components. Yet, Mr. Watanabe consid-ered this result as “outright humiliating” and launched his cost cutting ini-tiative (Shirouzu, 2006b).

2002 “Starting around 2002, Mr. Watanabe and his colleagues began pushingthe company’s powerful manufacturing gurus to re-think Toyota's much-admired ‘lean production’” (Shirouzu, 2006b). This was an extension of theeffort begun in 1996 with Mr. Okuda’s introduction of Vision 2005. Thatstrategy pushes Toyota to implement kakushin, meaning innovation or re-form as in radical redesign (Miller, 2006b). This shift stands in dramatic op-position to Toyota’s tradition of kaizen. Mr. Watanabe’s push is said to havebeen a reaction to discovering that many of Toyota’s manufacturing ma-chines were “too big, clunky, and slow” (Shirouzu, 2006b). No one askedwhy the action was not based on a root cause analysis of why TPS’ long tra-dition of “right sizing” machines had ceased to be implemented or howthis waste went undetected.

One example of the application of kakushin is the radical redesign Toyota’scar painting approach at two new plants, one in Guangzhou, China, andthe other in San Antonio, Texas. In an odd comment, Mr. Watanabe

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states that the issue of the long paint line (some three miles long) usedin existing plants seemed to “escape the attention of engineers” andthen muses that he noticed the issue, wondered why it was so, but neverasked the question or pointed out the issue to the engineers in the plant hemanaged.

“To replace the process of slowly dragging a car through a 115-foot-longbath of anticorrosion undercoating, Toyota engineers say they havecome up with a process they analogize to fondue. A car body is ‘swished’like a hunk of cheese in the paint pool to make the paint stick, eliminat-ing the need for the long pool. A Toyota spokesman says the goal is tohalve the length of the paint line. The new paint idea is being installedunder strict secrecy and is so advanced that Toyota hasn't shown it toany outsider” (Shirouzu, 2006b). A later evaluation of the intended im-provement found that “the new system costs roughly four times asmuch to set up as the traditional process, while producing ... minimal im-provements in the quality of the paint job and its efficiency” (Shirouzuand Murphy, 2009).

Fujio Cho extends Vision 2005’s financial focus and priorities with theintroduction of 2010 Vision. It sets a global market share target of 15%(Shirouzu, 2010). “To cut costs, Toyota ‘dramatically reduces’ crash testingof new car models, according to Koji Endo, a longtime car analyst andmanaging director of Advanced Research Japan” (Harden, 2010). Endoexplains, “They do virtual testing using computer models ... [but] fromtime to time there are real-world problems that the computer models donot account for” (Harden, 2010).

2003 Toyota first becomes aware of a problem with sudden, unintendedacceleration through a field report from a company technician. Thetechnician describes a case of sudden, unintended acceleration in aToyota model. According to a court document filed in U.S. District Court inCalifornia, the “author requested immediate action due to the ‘extremedangerous problem’ and [said] ‘we are also much afraid of frequency onthis problem in the near future’” (Whoriskey, 2010).

Routine testing reveals that the Sienna minivan had a problem with a partwhich could come loose causing the gas pedal to stick. Toyota redesignedthe part and installed it in 2004 models, but chose not to tell owners whobought the earlier version of the vehicle about the problem. In 2009,when investigations revealed what Toyota had done, it explained itsaction on the basis that “a safety recall was not justified” and thecorrected part was simply “an added safety measure” (Bensinger andVartabedian, 2009).

2004 Fujio Cho uses a ‘fear-based strategy’ to spur the drive for greater sales. Ina Financial Times interview he warns of potential disaster unless Toyotareinvents itself. “Steady success is good, but it can foster seriousweaknesses. Complacency sets in, customer focus declines, creative ideasdry up and before you know it, you are in trouble,” Cho observes (Ibison,2004). No one asks why complacency would set in within a companywhose people are committed to continuous improvement, have a 50-plusyear record of living that commitment, and a worldwide highest level ofemployee participation in contributing improvement ideas to the

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company. Nor do they ask how the goals he defines (increase sales ofPrius—he seeks a 300,000 unit sales increase by 2005, a five-fold in-crease as compared to Toyota’s 2003 level)—represent intensified cus-tomer focus. Cho continued, “The sense of crisis we feel, despiteincreasing sales and profits, stems from our fear that we have not keptup.” Again, no one asks whether Mr. Cho has applied Toyota’s famed A3problem solving method to uncover the reasons for their failure. Nor didanyone ask how keeping up with others was a core concern in the Toy-ota approach to business success.

In an interview with Forbes magazine, Cho states, “The challenge forToyota is to achieve more meaningful growth.” What does meaningfulgrowth mean? “By meaningful growth, I don’t mean bigger numbers. Imean, growing Toyota into a company that truly matters – to ourcustomers, our employees, our suppliers and to the societies where welive. Our biggest challenge is not to grow larger, but to grow better. Wewant to make better cars that sell for even lower prices; we want to makeall our stakeholders feel good about being associated with Toyota; and wewant to recycle some of our profits back into society” (Forbes.com, 2004).The interviewer did not think to ask why all the company’s priority goalswere in financial terms (sales, market share, profitability, cost reduction)seeking “bigger numbers” when what truly matters is “meaningfulgrowth.”

Toyota recalls 330,000 pre 1996 Hilux Surfs and 4Runners in Japan for dangerous steering mechanisms after an out-of-control Hilux Surf crashescausing serious injury to five people. The recall was provoked by a policeinvestigation into the accident. The defect was discovered by Toyota in1996. Toyota received a rebuke from the Japanese government and wasordered to revamped its recall system (Kanter, Maynard, and Tabuchi,2010). Although other truck models sold in the U.S. used the sameproblematic part, Toyota told the National Highway Traffic SafetyAdministration (NHTSA) in October 2004 that it would not conduct a recallin the U.S. because it had not received information here indicating aproblem with the part. As reported in the LA Times, “Documents enteredinto four lawsuits filed in Los Angeles [in 2009], however, revealed thatToyota had received numerous consumer complaints dating from 2000”(Bensinger and Vartabedian, 2009).

Katsuaki Watanabe’s push to squeeze one trillion yen out of Toyota’s partspurchasing, begun in 2000, realizes its cost reduction goal and is declareda success (Shirouzu, 2006b). The requirement that quality not suffer seemsto have failed based on 10-fold increase in yearly auto recalls since 2000,but this failure is not noted in the declaration of success. Recalls in 2004were in excess of 50% of all new cars sold in 2004, approximately 1.1million recalls (Shirouzu, 2006a).

In June, “the National Highway Traffic Safety Administration (NHTSA)sends Toyota a chart showing that Toyota Camrys with electronic throttlecontrols had over 400% more ‘vehicle speed’ complaints than Camryswith manual controls” (Waxman and Stupak, 2010). There is no report ofany action taken.

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2005 Katsuaki Watanabe is named CEO to succeed Fujio Cho. He sets twotrillion yen in operating profits as the company’s target and pushes for itsachievement.

Quality reaches a new nadir. Toyota’s worldwide automobile recalls climbto approximately 4.5 million vehicles, some 45 times more than 2000(Shirouzu, 2010). In the U.S. alone, its recalls reach 2.38 million, more thanthe 2.26 new cars sold in the U.S. during 2005 (Shirouzu, 2006a).

2006 At the June annual meeting, “outgoing chairman Hiroshi Okuda, its newchairman, Fujio Cho, and its chief executive Katsuaki Watanabe, all vowed... that the quality issue would be addressed” (Maynard and Fackler, 2006).They are reported as “considering” slowing the company’s growth pace inresponse to escalating recalls and quality issues (Shirouzu, 2006).Subsequent actions with regard to goals and the drive on growth seem toindicate that the “consideration” was rejected. As noted in an August 2006news article, “Toyota’s quality issues do not seem to be dampening itsoperations either in Japan or the United States ... . Nor is it affectingToyota’s net income, which climbed 39.2 percent during the secondquarter to $3.2 billion” (Maynard and Fackler, 2006).

Akio Toyota and Shinichi Sasaki are placed in charge of Toyota’s effort toimprove its quality problems. In a speech to company engineers, Mr.Toyota urges them to change their mindsets from producing volume toengineering quality. Apart from Akio’s personal urging, however,company goals, plans, and incentives remain unchanged (Shirouzu, 2010).

A senior Toyota engineer is quoted as stating that the company has made“a clear and conscious change” in the way it handles recalls. “We used todo quiet recalls called ‘service campaigns’ to deal with many defects, butwe’re not going to hide anything anymore” (Shirouzu, 2006a). Theassertion was made in response to recent vehicle defect scandals in Japanthat involved Mitsubishi Motors and also Toyota. Subsequent events (seebelow) suggest that the engineer may not have been well informed.

In response to the Japanese government’s dissatisfaction with Toyota’sunresponsiveness to customer complaints and its slow action on recalls,Toyota promises to create “a new computer database to obtaininformation more quickly from dealers on repairs and complaints”(Maynard and Fackler, 2006).

Toyota’s “quality problem” emerged in parallel to Toyota’s drive on costreductions and increased profits to fund global growth and theachievement of the top position in sales and revenue among automobilemanufacturers. In analyzing the reasons for the problem, observers offeran number of ideas. For example, as part of that strategy, engineers havebeen pressed to pump out more new models faster. “Productdevelopment bosses kept engineers on tight launch schedules. Toyotaused virtual testing to replace hands-on driver testing “to radicallycompress vehicle-development times” and cut costs by slashing thenumber of prototypes needed from 60 to just 20 (Shirouzu, 2006a).Another senior engineer reports that the fast pace of new model launches

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(cont’d)

and pressure to maintain schedules has given rise to “bonehead” mis-takes (Shirouzu, 2006a). Executives and engineers also report that an-other cause was the pressure “to use the same components in a widerrange of vehicles to save costs.” Later in 2010, it was also acknowledgedthat the hiring of a large number of inexperienced contract engineersacross a 10-year period as a means to cut cost and support the compa-ny’s rapid growth agenda was yet another causal factor (Shirouzu, 2010).

Later in 2006, Mr. Watanabe, in a Wall Street Journal interview, “groused”that “Toyota's factories and engineering practices aren't efficient enough.Within the company, he even questioned a core tenet of Toyota'scorporate culture -- kaizen, the relentless focus on incrementalimprovement” (Shirouzu, 2006b). In the interview he also characterizes hisexecutive style. "I am told a CEO should worry about big-picture stuff andshouldn't be concerned about minute details," he says. "I am obsessedwith details, I will be an irritant, and I am persistent. I am going to grumbleif the shop floor is cluttered or too greasy" (Shirouzu, 2006b).

2007 The California Court of Appeal finds “that ‘Toyota had intentionally violatedtwo orders compelling discovery’ of stability testing results in a case involv-ing a Toyota-made forklift that tipped over and killed a worker.” The courtfined Toyota $138,984.33 and ordered a new trial (Bensinger and Vartabe-dian, 2009).

2008 Toyota’s operating profit share reaches an industry high 8.6% (1.76 trillionyen). It unseats General Motors as the worlds biggest auto maker in termsof unit sales (Shirouzu , 2010; Shirouzu and Murphy, 2009).

CEO Watanabe breaks with Toyota protocol “by single-handedly decidingwhat vehicles would be built at a factory under construction in Mississippi... without first consulting other executives” (Shirouzu and Murphy, 2009).

Toyota executives seek greater profit by pushing up prices “for an array ofmodels including the redesigned Corolla” despite dealer feedback thatthe new pricing was too high from a consumer perspective. The priceincreases of about $1,000 to $1,500 were implemented. “Not surprisingly,sales were weak. Toyota sold 21,000 Corollas in February 2008 down 25%from a year earlier” (Shirouzu and Murphy, 2009).

Toyota receives reports of a sticking gas pedal problem in December 2008(Kanter, Maynard, and Tabuchi, 2010). No corrective action is taken.

2009 In April, Toyota warns engineers in the U.S. of a sticky gas pedal problem ithad previously identified in December of 2008. No action was taken(Maynard, 2010a).

Toyota Motor Corporation names Akio Toyoda as its new president onJune 23, 2009. Along with Toyoda, Toyota names a new managementteam that includes four new executive vice presidents and eight newboard members. “In a move seen as an attempt to balance the newlypromoted with seasoned veterans, Toyota brought back Yoshimi Inaba,an outspoken heavyweight who left as executive vice president in 2007 tohead an airport that Toyota helped build. Inaba returns as a director andwill take charge of Toyota's North American operations, the company's

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(cont’d)

largest and, until recently most profitable market. Inaba, fluent in Eng-lish, headed Toyota Motor Sales U.S.A., the California-based sales arm,from 1999 to 2003” (Kubo and Kim, 2009).

In July, a presentation of achievements was made by Toyota staff toYoshimi Inaba, Executive Vice President, Member of the Board and ChiefOfficer of the North America Operations Group. On a slide entitled, "Winsfor Toyota -- Safety Group," U.S. Toyota executive’s “boasted of savinghundreds of millions of dollars by getting the federal highway safetyregulators to limit the scope of recalls” for floor mats in some Toyota andLexus vehicles (Maynard, 2010a; CNBC, 2010). The floor mats could causeunintended acceleration (Valdes-Dapena, 2010). In 2010 testimony, Mr.Inaba tacitly admitted that he was briefed on the Safety Group’s successwhen he stated, that he could not remember the meeting where he wasbriefed on the memo “with any depth” (Bensinger and Vartabedian, 2010).Other “wins for Toyota” lauded in the same presentation were a savings of$124 million reaped by winning a phase-in to new safety regulations forside air bags and an $11 million savings reaped by delaying a rule fortougher door locks (Thomas, 2010). Also credited as wins were "‘Avoidedinvestigation on Tacoma rust’ and helping win delays in various newfederal safety regulations” (Valdes-Dapena, 2010). In response to therevelation of this presentation, a Toyota spokesperson says, “Our firstpriority is the safety of our customers and to conclude otherwise on thebasis of one internal presentation is wrong. Our values have always beento put the customer first and ensure the highest levels of safety andquality" (Thomas, 2010). The fact that this internal presentation was to anexecutive officer and member of the board of Toyota without concern forreprimand for being unaligned with Toyota’s values was not explained.

“In August, the month following the presentation of “Safety Wins” inwhich the executive boasted of saving $100 million over a full recall, afamily of four was killed in a Lexus with its gas pedal stuck under a floormat” (Valdes-Dapena, 2010).

In September, “Toyota told dealers in European countries that it waschanging the way it would build cars sold there, and outlined the repairprocedures the dealers should follow in the event of sticking gas pedals,sudden engine surges or unexpected acceleration” (Maynard, 2010a).

On Oct. 7, five days after an email exchange between Transport Canadaand Toyota, the Canadian equivalent to the U.S.’s NHTSA, Toyota issued amassive recall that included Camrys, Corollas and Highlanders, because ofproblems with sliding floor mats potentially jamming the gas pedals(McKie, 2010). However, at the same time, in the U.S., Toyota stalledimplementing a recall claiming to the NHTSA that it needed time to pindown the cause of the problem and devise an appropriate fix. Given itsaction in Canada, this was not true. Nonetheless, it convinced the NHTSAto allow it to just issue a safety advisory to owners to remove the floormats (Maynard, 2010a).

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Ignorant of the Canadian recall, NHTSA’s spokesperson, Rae Tyson,expresses sympathy for Toyota’s position stating, “I think Toyota is goingto have a challenge on its hands to come up with a remedy that is goingto address the problem” (Krisher and Strumpf, 2009). Mr. Tyson isapparently unaware that Toyota had a solution that it had alreadyimplemented it in Canada. The company chose not to correct Mr. Tyson’signorance.

After three years of reductions in recalls, Toyota’s worldwide automobilerecalls reach a new record level of over 7 million cars. The Toyota branddrops to sixth place in quality rankings by new car owners. Its Lexus brandfalls from top position in the luxury car quality rankings to third behindBuick and Jaguar.

Toyota’s sudden, unintended acceleration in various models reachespublic attention.

2010 In a January email message to another Toyota staff member, Irving A.Miller, then a group vice president for Toyota Motor Sales USA, states, “Ihate to break this to you, but we have a tendency for mechanical failure inaccelerator pedals of a certain manufacturer on certain models." He adds,“The time to hide on this one is over. We need to come clean” (Maynard,2010a). His recommendation for ‘truth saying’ seems predicated onToyota’s inability to sustain secrecy. No mention is made of duty owed tocustomers. Also, no clarification is made as to whether it remains okay to“hide” on other issues, if secrecy can be sustained.

On January 16, Toyota informs the NHTSA that some of its models mayhave a sticking gas pedal problem. Three days later, in a face-to-facemeeting, Toyota executives claim that it was the first time they wereaware of the problem (Maynard, 2010a). [Note that documents reveal thatToyota was first aware of the problem in December 2008.]

On January 21, Toyota orders a recall for the pedal problem, but statesthat it does not yet have an answer as to how to fix it. In response to whythe recall took so long to occur despite hundreds of complaints, Toyotastated that it had only discovered the gas pedal problem in October of2009. Later, Toyota testifies in a Congressional committee meeting onJanuary 27 that it “first learned of this problem through reports of stickingpedals in vehicles in England and Ireland in the spring of 2009.” Thisstatement also proved inaccurate as Toyota later acknowledged it hadreceived reports of the problem “as early as December 2008” (Kanter,Maynard, and Tabuchi, 2010). On January 28, Toyota announces its fix. It isthe same fix it applied in Canada three months earlier (Maynard, 2010a).

Toyota stops production and sales of eight models for the gas pedalproblem (RAV4, Highlander, Sequoia, Corolla, Camry, Avalon, Matrix, andTundra trucks). The eight models represent 65% of the sales of Toyotavehicles in the U.S. and almost half the sales of the Toyota MotorCorporation (Mufson and Haynes, 2010).

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In February, James E. Lentz III, Toyota Motor Sales U.S.A’s chief operatingofficer, reports that he did not know of the sticky gas pedal problem untilJanuary 2010. He is not asked about documented evidence that engineersin the U.S. were warned about the pedal problem in December 2008(Maynard, 2010a; Mufson and Haynes, 2010).

Also in February, Shinichi Sasaki, Toyota’s vice president for quality,acknowledges three sources for Toyota’s quality problems—lack ofthoroughness of testing of new cars and car parts; failure to gatherinformation from customer complaints, specifically their complaints aboutnew cars; and failure to analyze and act on customer complaints (Harden,2010). No mention is made of the effects of the cost reduction drives ofthe three previous CEOs on executive decision-making with regard tomodifying design processes, engineering staffing and development,executive incentives, the push to kakushin, the failure to problem solvethe 8-year increase in recalls, or other related actions and non-actions. Noone asks how the problem of gathering customer complaint informationcould exist given Toyota’s promise in 2006 to build a database specificallyto correct this problem (Maynard and Fackler, 2006).

In December, NHTSA fines Toyota 32.425 million dollars, the maximumfine allowable, for its poor response to safety issues (U.S. Department ofTransportation, 2010b). Prior to the fine, Transportation Secretary RayLaHood repeatedly calls Toyota "safety deaf” (Maynard, 2010a). In hisannouncement that DOT was seeking maximum civil penalties, La Hoodstates, “We now have proof that Toyota failed to live up to its legalobligations. Worse yet, they knowingly hid a dangerous defect for monthsfrom U.S. officials and did not take action to protect millions of drivers andtheir families. For those reasons, we are seeking the maximum penaltypossible under current laws” (U.S. Department of Transportation, 2010a).In confirmation of LaHood’s assertions, Gordon (2014) reports that Toyotaadmits that it redesigned critical parts related to its sticky gas pedalproblem “without changing the part numbers.” The industry practice is tochange a part’s number whenever it is retooled. Gordon further reportsthat “Toyota admitted in documents in its recent court settlement that itdid so to prevent regulators from learning about a problem with “sticky”gas pedals.” As well, that step “made it more difficult for ... private litigantsto identify the problem.”

In an apparent confirmation of the direction the three nonfamily CEOstook Toyota and their continued contempt for Akio Toyoda, they arereported to say that “Mr. Toyoda never publicly opposed theirprofit-growth strategy when the company was widely praised for makingbig money and surpassing General Motors Corp. to become the world'sNo. 1 auto maker.” Hiroshi Okuda, in particular, “has told at least twoassociates since the recalls of cars involved in sudden accelerationincidents earlier this year: ‘Akio needs to go’” (Shirouzu, 2010). None ofthese former leaders of Toyota ever uttered a statement that came closeto acknowledging how grievous a violation of the supposed “Toyota Way”were the actions taken under their direction of the company.


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