A sticky accelerator pedal last year tarnished the once-vaunted reputation of the Toyota Motor Corporation. These authors, who have written two widely acclaimed books on Toyota, argue – successfully – that the pedal’s stickiness was caused not by relaxed manufacturing standards, as was commonly believed, but rather by failing to reconcile the means with the ends in trying to meet a corporate goal. Readers who hope to create a culture of excellence will learn why that particular reconciliation is important and how to achieve it.
Getting the most from employees is a perpetual concern of management. From the industrial revolution through at least the 1970s — marked most famously by Frederick Winslow Taylor’s efforts in “scientific management” — the primary focus of managers was increased employee efficiency. This thinking gradually led to the creation of vast bureaucracies to manage the minutiae of efficiency. In most manufacturing environments, the largest sector of the American economy at the time, an adversarial relationship between management and labor prevailed.
But even in the darkest times of bureaucratic control there were companies and management systems that recognized that employees did not have to be the enemies of managers. Effectiveness, these companies realized, could generate better business results than efficiency.
During the 1980s, several trends happened to intersect in a powerful way, finally dethroning efficiency as the dominant goal of management. One was the long-term trend away from manufacturing to service industries, where efficiency was much harder to measure. Another was the dawn of the personal computer era, which gradually gave all levels of management a much better set of tools for managing effectiveness.
In manufacturing, the most powerful force was the global success of Toyota—a firm whose emphasis on effectiveness made it far and away the most efficient manufacturer on the planet. More and more firms sought to embrace effectiveness as the primary goal of management, even though few companies had experience with managing employees for effectiveness. These companies searched for a set of tools and easily defined principles that would allow them to rapidly shift to a new style of management. Everyone understood that more engaged, less adversarial relationships with employees were necessary. More than perhaps any other company, Toyota’s approach to engaging all employees in continuous improvement became a touchstone.1 Toyota practices like kaizen and andon cords appeared in endless business magazine articles. They even made an appearance in a popular comedy film.
Management By Objectives vs. Management By Means
Today, virtually every firm has to at least use the vocabulary of employee engagement even though its leaders may not walk the talk —a phenomena that has been mercilessly parodied for years in the Dilbert comic strip. Still, there are many companies that truly did and do want to improve performance by engaging and empowering employees. This desire, in turn, led to efforts to systematize management practices to achieve these goals.
The most famous — and perhaps most roundly criticized — of these attempts is Management by Objectives (MBO).2 The concept of MBO is to empower everyone in the enterprise by articulating clear goals and objectives, and allowing managers and workers to figure out how to best achieve them. The MBO “system” often comes complete with consultants and spreadsheets to help “cascade” objectives from executives down to the lowest levels of the company. Actual, concrete measures of results versus the planned results are used to evaluate employees. The theory behind MBO is that it empowers people, limits micromanagement and encourages accountability—all recognized as goals of an enlightened management and indeed goals with which employees can identify and hope to achieve.
But as good as the intentions are, it’s clear that MBO in practice can lead to negative consequences. By essentially ignoring the ways in which managers and workers achieve the objectives laid out, MBO creates ample space for unintended consequences. There are many cases where MBO leads to people cutting corners (both in terms of quality and ethics) to meet targets. In many companies that employ MBO, the targets clearly matter more than the methods—and everyone up and down the management ladder reacts accordingly.
Recently, a new systematized management approach has emerged, particularly in the lean community (which still looks to Toyota as its touchstone). Its emergence is a reaction to the failings of Management by Objectives. The approach seeks to refocus attention on what MBO ignores, namely how objectives are achieved. Known as Management by Means (MBM), this approach is built on the theory that, if managers pursue their jobs in the right way, positive outcomes will necessarily follow.3 Some of the advocates of MBM go as far as to recommend the development of “management standardized work,” a set of prescribed practices for managers—such as daily walks to ask questions and provide coaching—in order to ensure that the proper “means” of management are being employed.4
MBM sounds noble and appealing, but in practice, it has serious limitations, just like MBO. While MBM seeks to fix the imbalance caused by focusing only on the results, it goes too far to the other extreme. Both MBO and MBM are unnecessarily and wrongly reductionist. Objectives and means are inextricably linked.
Advocates of MBM have invoked Toyota’s recent struggles in the global recession and recall crisis as evidence of the dangers of MBO and the virtues of MBM. The advocates claim that Toyota’s troubles can be traced to the corporation’s 2002 decision to aim for a 15 percent global market share, as part of its “Global Vision 2010”5, ( Toyota announces a decade long strategic vision at the beginning of each decade; Global Vision 2020 was just finalized this spring). The goal is held up as an example of the prioritization of objectives over means, of quantity over quality.
We believe this view of the lessons from Toyota’s recent past is based on fundamental misunderstandings of both the facts of what actually happened at Toyota over the last decade and of the principles of lean leadership. Ultimately, the misunderstandings mean that the current direction of MBM and management standardized work is off base and are likely to fail to meet desired goals, just as MBO did.
What really went wrong at Toyota
Since the crisis, much has been written in an attempt to diagnose what went wrong at Toyota. When the recession struck and Toyota announced its first annual loss in more than 50 years, we were working on a book examining Toyota’s approach to leadership and leadership development.6 The recession and the recall crisis gave us a unique opportunity to examine how Toyota responded to difficult times and to examine, up close, as well as the causes of the crises and the lessons to be learned for any company pursuing long-term excellence.
Providing historical perspective will enable us to understand why the 15 percent market share target did not signify the substitution of objectives for means. At the annual Shingo Prize conference in February of this year,(article co-author) Jeff Liker attended a lecture by a long-time Toyota executive and student of Taiichi Ohno, one of the legendary founders of the Toyota Production System. During the Q&A, someone in the audience asked whether he thought the 15 percent global market share target was an indicator of a weakening of the Toyota Way. The gentleman chuckled before responding: “In 1950, our long-term vision was that 1 out of 4 people in the world would be driving a Toyota.” In other words, the goal in 1950 had been a 25 percent global market share. At the very time when the Toyota Way and the Toyota Production System were being put in place, the company’s market share goal was much more audacious than the 15 percent goal that many point to as being misguided. In fact, if a 25 percent market share goal didn’t cause problems for the company in the 1950s, it’s hard to believe that a 15 percent market share goal derailed the company 50 years later.
The root cause of the problems Toyota encountered is not in the specific metric or even in setting a target that was based on market share rather than customer satisfaction. What many who espouse the “market-share-centric” view fail to note is that the market share target grew out of a customer satisfaction goal of Global Vision 2010: “To be the most admired auto company in the world.” That’s a hard goal to measure, and so it was translated in to specific targets, including among others, 15 percent global market share.
Indeed, further undermining the idea that the 15 percent target was a cause of problems or even emblematic of deeper problems, is Toyota’s deep use of metrics throughout the company. The reason that Toyota is so widely admired is not simply a vague commitment to excellence. Rather, it is because the corporation has achieved seemingly impossible metrics and objectives on a consistent basis over more than 50 years. It has always set numerical objectives for continuous improvement at every level of the company.
Anyone who’s ever set foot in a Toyota plant knows that there are metrics everywhere. The Toyota Way is explicit about the need for tangible targets and measurements of progress. Toyota Business Practices, the company’s famed problem-solving approach, would be useless without metrics. The targets in Toyota’s hoshin kanri system (aka, policy deployment) always start with results and are broken down level by level to each department’s share of the targets, the means they will use to achieve this (a plan), and the metrics to track progress and means. Thus, the objectives for results and means are integrated.
For example, when the 15 percent goal was established as part of Global Vision 2010, the senior executives met in offsite to discuss how to translate it into North American targets, which would in turn become hoshin kanri plans for both results and means. They set targets in four areas: supplier development, cost reduction, people development, and customer satisfaction. Then, a senior vice president was put in charge of each area and given responsibility for developing a plan and guiding implementation.
There were many separate initiatives in each of these four areas over the ten-year period. For example, one key objective of the customer satisfaction focus was a drive to reduce warranty claims by 60 percent—an objective that was achieved by the end of the decade. There was nothing wrong with any of these very tough objectives, all of which were driven by the ultimate objective of becoming the most admired car company in the world.7 In other words, objectives for improved quality were based on the same high-level goal as the 15 percent market share objective. Achieving an objective for quality or market share in the short term, while undermining the true goal of becoming the most admired car company in the world would have been perceived as equivalent failures.
Not hitting metrics is a source of deep shame for a Toyota leader. You’ll never hear a Toyota leader say: “It’s OK that we didn’t hit our results targets because we worked on them in the right way.” In fact, not hitting targets indicates that leaders were not using the right means. This points out the fact that in true lean leadership, means and objectives cannot be realistically separated. A true Toyota Way leader pursues his or her objectives for results with every ounce of their energy but does so in ways that are consistent with the Toyota Way.
It’s obviously true that you could have the wrong targets, or that circumstances could change, leading to an inability to meet targets the right way. But that reflects on the target-setting process. True lean management recognizes that the target-setting process and the pursuit of targets cannot be independent. If you don’t set targets in the right way, and if people do not have the skills or motivation to develop a good plan, it’s irrelevant whether your management approach is “by means” or “by objectives.”
Lessons for managing for excellence
So, if the 15 percent market share theory doesn’t hold water, what explains the crisis at Toyota? More importantly, what are the real lessons for others seeking insight into how to manage for excellence and breakthrough performance?
First, it’s important to note (as we document thoroughly in Toyota Under Fire)8 that the perception of a widespread or serious decline in safety or quality at Toyota is simply false. The sudden unintended acceleration rumors, specifically, never had any basis in fact.
In the wake of the crisis, Toyota appointed a panel to review its quality and safety procedures9. The panel found many of the same issues that we did in our conversations with Toyota leaders. As the decade progressed, there was some deterioration in quality that showed up in various ways, such as being dropped from automatic approval for new models in Consumer Reports. Toyota’s largest plant, in Georgetown, Kentucky, stopped winning JD Power awards for excellence at a plant level.
So there were problems at Toyota that emerged after 2002, but they weren’t related in a simple cause-and-effect way to certain objectives or the goal-setting process. The problem was that with so many new people hired, and a great demand for Toyota-trained managers and executives by other companies, the level of people development could not keep pace. Fewer highly developed leaders and engineers had to do more work. This problem was recognized by the middle of the decade, and intensive training was implemented and vehicle-development cycles were lengthened in order to focus on quality. The quality awards began to return by the end of the decade.
In some ways, the crisis caused by the recession that began in 2008 was a saving grace for Toyota. It brought breakneck growth to a halt before the gap between the company’s ability to train people and the number of leaders and managers it needed to keep up with growth became too large. Toyota used the downtime in the recession—and in the subsequent recall crisis and the slowdown caused by the Japanese earthquake in 2011—as opportunities to make up lost ground in terms of training and experience in Toyota Business Practices, problem-solving, continuous improvement and the Toyota Way. Despite stopping certain assembly lines for weeks and often for several months, there were no involuntary layoffs of Toyota “team members.” Rather than building cars the company focused on improving everyone’s ability to use the right means to achieve even more aggressive targets for cutting costs and improving quality than it had in the past.
Toyota’s experience should have a sobering influence on those focused on management by means and management-standardized work. Toyota was conducting plenty of leadership development in the style of management- standardized work before the recession, and it certainly didn’t stop promoting Toyota’s core values. But more was needed. It required real hands-on work to achieve challenging targets in cost, quality, and safety. The three crises created a “burning platform” to refocus everyone—from the shop floor to the executive suite—on going “back to basics” on problem-solving and continuous improvement. The reduced workload as a result of decreased demand in the recession and during the recall crisis, and decreased supply in the aftermath of the earthquake, gave Toyota more time to invest in leaders throughout the company and to ensure that the company could meet objectives using the right means.
Management by Means and management-standardized work aren’t pointless or counterproductive, but just like Management by Objectives, they are not sufficient. Both MBM and MBO are examples of what economist Lant Pritchett and colleagues have called isomorphic mimicry.10 Borrowed from evolutionary biology, Pritchett uses the term to describe how government institutions in developing nations adopt “best practices” and institutional forms that mimic those in countries and institutions that provide aid. But copying the forms without adopting and adapting the cultural norms and underpinnings that generated those forms is essentially pointless. The same is true for companies seeking to establish a platform for effectiveness. Copying the forms without the underlying culture simply doesn’t work. Even at Toyota, where the cultural norms and practices were strongly established, a few years of inattention created weaknesses in a system that had worked for 50 years.
Continuous improvement, employee engagement and effective, lean management cannot be implemented successfully simply by adopting tools, establishing rules or mimicking organizational structures. The only way to achieve the goals of lean leadership—meeting ambitious objectives in the right way—is to dedicate years to developing a culture that values objectives and means equally.
At Toyota, every team member goes through a basic set of development steps at each stage of their job and career. In Japanese this is known as Shu Ha Ri, which means basic learning by copying exactly (Shu), mastering the basics so that they become second nature (Ha), and becoming so masterful at the basics you can go beyond them and improve (Ri).11
Management-standardized work or MBO spreadsheets are only the Shu stage of learning. Management by Means and Management by Objectives are only a small piece of the Ha stage. You don’t get to the Ri stage – that of a true lean leader — until you can use the right means and achieve challenging objectives.
Management by Means and Management by Objectives are like training wheels on a bicycle. They are the basics that will get you started. Such tools – in this context, MBO and MBM -can perhaps be used to start to create the culture necessary for employee engagement, continuous improvement and a true management ability to drive effectiveness. Unfortunately, too many companies (often with the explicit encouragement of high-priced consultants) are hitting the open road with their training wheels still on, thinking that that’s all they need needed to transform the company. But then they wonder why they aren’t seeing the transformative and breakthrough results that Toyota and other companies that have spent years developing true lean leaders are achieving. There are no shortcuts to creating a culture that can engage employees fully and improve effectiveness continually. Management by Objectives and Management by Means can be stepping stones —but only if they are understood to be only the first, small steps. Treating either like the end goal can only result in disappointment.
- Jeffrey Liker, The Toyota Way, N.Y.: McGraw Hill, 2004.
- Odiorne, George S., “Management by Objectives; a System of Managerial Leadership”, New York: Pitman Pub., 1965.
- H. Thomas Johnson, Profit beyond Measure, N.Y.: Free Press, 2008.
- Joe Murli, “Integrating Leader Standard Work with Visual Management Tools,” pdf download from Lean Enterprise Institute, 2011 (www.lean.org/downloads/lei_dec_9_visual_managment.pdf).
- Bill Waddell, “Lean’s Fork In The Road,” http://www.evolvingexcellence.com/blog/2011/03/leans-fork-in-the-road.html
- Jeffrey Liker and Gary Convis: Lean Leadership: The Toyota Way, N.Y.: McGraw Hill, October, 2011.
- Liker and Convis, Ibid.
- Jeffrey Liker and Timothy Ogden, Toyota Under Fire, N.Y.: McGraw Hill, 2011.
- You can read their full report at http://www.toyotaqualityadvisorypanel.com/
- Lant Pritchett, Michael Woolcock and Matt Andrews, Capability Traps? The Mechanisms of Persistent Implementation Failure, Center for Global Development Working Paper No. 234, December 7, 2010; http://www.cgdev.org/content/publications/detail/1424651
- Liker and Convis, Ibid.