The Creative Corporation

In every single speech I make, I say Toyota, not Google or Apple, is the single best example of the creative company.  Nearly 15 years ago, I wrote a book on this with Martin Kenney. James Surowiecki makes the case ever more succinctly in his latest New Yorker column:

But if Toyota doesn’t look like an innovative company it’s only because our definition of innovation—cool new products and technological breakthroughs, by Steve Jobs-like visionaries—is far too narrow. Toyota’s innovations, by contrast, have focussed on process rather than on product, on the factory floor rather than on the showroom. That has made those innovations hard to see. But it hasn’t made them any less powerful.

At the core of the company’s success is the Toyota Production System, which took shape in the years after the Second World War, when Japan was literally rebuilding itself, and capital and equipment were hard to come by. A Toyota engineer named Taiichi Ohno turned necessity into virtue, coming up with a system to get as much as possible out of every part, every machine, and every worker. The principles were simple, even obvious—do away with waste, have parts arrive precisely when workers need them, fix problems as soon as they arise. And they weren’t even entirely new—Ohno himself cited Henry Ford and American supermarkets as inspirations. But what Toyota has done, better than any other manufacturing company, is turn principle into practice. In some cases, it has done so with inventions, like the andon cord, which any worker can pull to stop the assembly line if he notices a problem, or kanban, a card system that allows workers to signal when new parts are needed. In other cases, it has done so by reorganizing factory floors and workspaces in order to allow for a freer and easier flow of parts and products. Most innovation focusses on what gets made. Toyota reinvented how things got made, which enabled it to build cars faster and with less labor than American companies.

But there’s an enigma to the Toyota Production System: although the system has been widely copied, Toyota has kept its edge over its competitors. Toyota opens its facilities to tours, and even embarked on a joint venture with G.M. designed, in part, to help G.M. improve its own production system. Over the years, more than three thousand books and articles have analyzed how the company works, and things like andon systems are now common sights on factory floors. The diffusion of Toyota’s concepts has had a real effect; the auto industry as a whole is far more productive than it used to be. So how has Toyota stayed ahead of the pack?

The answer has a lot to do with another distinctive element of Toyota’s approach: defining innovation as an incremental process, in which the goal is not to make huge, sudden leaps but, rather, to make things better on a daily basis. (The principle is often known by its Japanese name, kaizen—continuous improvement.) Instead of trying to throw long touchdown passes, as it were, Toyota moves down the field by means of short and steady gains. And so it rejects the idea that innovation is the province of an elect few; instead, it’s taken to be an everyday task for which everyone is responsible. According to Matthew E. May, the author of a book about the company called “The Elegant Solution,” Toyota implements a million new ideas a year, and most of them come from ordinary workers. (Japanese companies get a hundred times as many suggestions from their workers as U.S. companies do.) Most of these ideas are small—making parts on a shelf easier to reach, say—and not all of them work. But cumulatively, every day, Toyota knows a little more, and does things a little

They’re also phenomenally difficult to duplicate. In part, this is because most companies are still organized in a very top-down manner, and have a hard time handing responsibility to front-line workers. But it’s also because the fundamental ethos of kaizen—slow and steady improvement—runs counter to the way that most companies think about change. Corporations hope that the right concept will turn things around overnight. This is what you might call the crash-diet approach: starve yourself for a few days and you’ll be thin for life. The Toyota approach is more like a regular, sustained diet—less immediately dramatic but, as everyone knows, much harder to sustain. In the nineteen-nineties, a McKinsey study of companies that had put quality-improvement programs in place found that two-thirds abandoned them as failures. Toyota’s innovative methods may seem mundane, but their sheer relentlessness defeats many companies. That’s why Toyota can afford to hide in plain sight: it knows the system is easy to understand but hard to follow.

Comments

[Michael Wells]

This throws into question the old saw about the tradition-bound, hierarchical Japanese. Compared to say the innovative risk-taking Americans running Detroit.

[hayden fisher]

Or could it be that Toyota is the best example of the creative economy and class operating successfully in a more traditional and less obvious context. In a place one might not thing of at first blush. Generally, we miss the impact, or lack thereof (Detroit), of the creative economy in industrial and agricultural sectors. Critically, companies that value creativity and the "thinking" capacities of every individual bring much better products and services to the market-place and provide working environments marked by pride and a positive competitive spirit.

I'm working with some top flight coal miners right now who demonstrate incredible abilities to think outside the box and make logical persistent improvements to the processes. Better for the miners, the environment and the world. We're also working with an independently-owned company that has created many patents and new methods of mining more efficiently and in ways more friendly to the environment. They're creating win-win scenarios across the board by thinking outside the box. They love what they do and bring passion and pride to their enterprises. So, consistent with your piece, creativity truly does come in all shapes and sizes, and should be valued more broadly.

[tom kubilius]

It's also important to note Edwards Deming's contribution to this Japanese focus on continuous improvement. His work with the Japanese gov't and companies right after World War II were an important factor in the adoption of Kaizen. Without his ideas of measurement and focus on quality as a to long-term profitability, those ideas might not have taken hold.

It's just a shame his ideas didn't get the same traction here as they did in Japan.

[Zoe B]

Check out Clotaire Rapaille (The Culture Code, 2006) on how Americans feel about quality. Rapaille collects stories to determine people's deep feelings on a subject, for he feels that these deep feelings (summarized as a 'code') are what determines how people act (regardless of what they claim their reasons to be).

Through this method, Rapaille says that Americans' code for quality is 'it works'; and our code for perfection is 'death'.

"Because we equate perfection with death, we don't expect anyone to make the perfect product. We expect our products to break down. However, because our Code for quality is IT WORKS, we expect problems to be resolved quickly and with a minimum of disruption. Americans are far more responsive to good service than they are to perfection (which they don't believe in, anyway). Crisis is a great opportunity to create loyalty. If a customer comes to you with a problem with a product or service and you solve that problem quickly and minimize the customer's inconvenience, you will likely earn that customer's dedication. You have proven yourself to the customer.

Ironically, if your product never breaks down, you never have the opportunity to develop this relationship with the customer. When the customer seeks to replace the product (as he inevitably will), he is likely to look elsewhere, because he hasn't formed a bond with you. The bottom line is that great service is more important to Americans than great quality." pp. 138-9

It's food for thought, but I think he's not entirely right. My parents 'developed a relationship' with the Honda Civic because it was so reliable and fuel-efficient. They did not own an American car for 40 years, because Detroit's product was sub-par. I've never owned an American car either, for the same reason.

[Michael R. Bernstein]

I recently read a report on applying the Toyota system to semiconductor manufacturing titled "The New Economics of Semiconductor Manufacturing":

http://www.spectrum.ieee.org/print/6179

"By August 2007, the organization had lowered cycle time in the fab by
67 percent and reduced costs by 12 percent. In addition, the number of
products produced increased by 50 percent, and the production capacity
increased by 10 percent, all without additional investment."

Sounds like a winner to me.

BTW Richard, there is a *lot* of incremental improvement inside many high-tech businesses like Google and Amazon. The fact that externally it looks like all they do is launch 'cool new products' is just as misleading as dismissing Toyota's vehicles as boring.

[Stuart Murray]

Employee participation programs require a bunch of supporting policies in order to work. Unfortunately for North America, they are things that are incompatible with the business conservative monoculture which we take for granted. For example, Japanese firms have strong job security arrangements which reassure employees that they cannot eliminate their own jobs through productivity improvements. Also, flattening the hierarchy often requires transparent egalitarian symbols, such as modest executive compensation and less flashiness in terms of cars, planes and offices that executives tend to wallow in. Can you see a US firm going down that road? Of course not; in North America, the whole purpose of corporations is to divert the riches to the CEO so they can lord it over the employees that are constantly fearful of layoffs.