Toyota Under Fire: an interview with Jeffrey K. Liker
Interview by: Giles Metcalfe
Dr Jeffrey K. Liker is Professor of Industrial and Operations Engineering at the University of Michigan and principal of Optiprise, Inc. Dr Liker has authored or co-authored over 75 articles and book chapters and nine books.
He is author of the international best-seller, The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer, McGraw-Hill, 2004 which speaks to the underlying philosophy and principles that drive Toyota's quality and efficiency-obsessed culture.
His latest book, Toyota Under Fire, was published in early 2011. Dr Liker's articles and books have won eight Shingo Prizes for Research Excellence and The Toyota Way also won the 2005 Institute of Industrial Engineers Book of the Year Award and 2007 Sloan Industry Studies Book of the Year. He is a frequent keynote speaker and consultant. Recent clients include Siemens, Kraft-Oscar Meyer, Alcatel-Lucent, Hertz, Caterpillar, Nebraska Furniture, and Harley Davidson.
GM: What was the background to you writing Toyota Under Fire?
Originally I was writing a book with a former Toyota executive, Gary Convis, (and Tim Ogden as our professional co-writer) about leadership and then the recession hit so we included in the book that Toyota used the recession as an opportunity for leadership development and did not lay off any regular employees – engaging them instead in training and improvement. When the recall crisis hit we considered adding that to the leadership book, but it quickly grew so large and visible that it warranted its own book. As the facts unfolded and it became clear that the mainstream media wanted to milk the negative publicity and avoid any stories that put Toyota in a positive light we decided we needed to tell the story of what really happened, separate fact from fiction, and provide an insider view of how Toyota was responding.
GM: Who should read the book, and why?
For the last two decades there has been a global movement to learn from Toyota, the lean movement. It has hit virtually every industry, including healthcare, government, and education. The Toyota Way became the model. It is a model of how to achieve excellence in whatever you do. Certainly, anyone whose organization is involved in a transformation to a culture of continuous improvement and operational excellence should read this book to more deeply understand the Toyota Way in action. Many have found it a powerful companion to The Toyota Way because it gives a different perspective in how the principles apply in hard times.
GM: Is a business’ culture the only true competitive advantage it has?
In a sense I would say yes, but our definition of culture is very broad. It is the shared set of beliefs, values, and behaviour that define how you conduct the business. It guides how you define your customer, your core products, your way of developing leaders, your way of thinking about your core work processes, the way you think about technology, the way you decide about investments for the future, the priorities you place on quality, cost, customer service, safety, and employee morale and more. As you develop the culture and have success it provides accumulated know how, brand reputation, continuing performance, adaptation to changes in the environment, and innovation. So we argue that without a strong culture any clever decisions about buying and selling businesses or entering new markets will have a one-off effect. A strong culture allows organizational learning which provides a cumulative effect of experiences making the foundation of the firm stronger and stronger. Without a strong culture Toyota would have struggled greatly to get through the recession, recall crisis, and Japan earthquake with its reputation, financial health, and product offerings as strong as they still are.
GM: For those who aren’t familiar with Toyota’s culture, what is the "Toyota Way"?
Toyota defines it very simply – respect for people and continuous improvement. Continuous improvement quite literally means everybody everywhere in the organization – manufacturing, engineering, sales, purchasing, distribution, customer service, quality, supplier partners, dealers – living the philosophy of getting a little better every day, and a lot better some days. If there is a period of intense focus on getting out the product or fighting fires to keep the business running and nobody has time to reflect, find the root cause, and improve, then continuous improvement is failing. Respect for people means viewing them as partners in the business who appreciate in value as they learn, rather than replaceable commodities who can be let go or added at any time. Without a commitment to employees and their development continuous improvement will be a dream, never a reality. There are a lot of details below these two, such as how you do continuous improvement. Toyota believes strongly that there is a skill base to really understand the problem and its root causes before firing off solutions and that any solutions are temporary “countermeasures” until a better idea comes along. So, you must always reflect and keep adjusting the process to improve it and, the more problems you solve in the right way, the more skilled you get at problem solving. In the case of the recall crisis, Toyota was never going to be happy about just getting through all the negative publicity and damage to its reputation. The only acceptable outcome was to come out stronger.
GM: What is hansei, and how does it define Toyota’s attitude to customer service?
Hansei is deep reflection on what has just happened compared to the ideal, self criticism, and then developing a plan to get better. You have to feel deep dissatisfaction with each deficiency you can identify. The ideal is very simple – the customer always comes first. That is the reason for the existence of the company. When Toyota used its almost unique cultural capability of hansei and problem solving in the wake of the recall crisis, and all parts of the business sifted through the facts to understand what the problems were, they found that almost all the claims being made by the media and the government about technical defects in cars that caused sudden unintended acceleration were myths, not reality. This was one year after the fact confirmed when NHTSA (agency dealing with recalls) and NASA (who they contracted to study Toyota vehicles) released their reports. But that was not the end of the story for Toyota. They had established SMART – teams of engineers and highly trained technicians – to study first hand any customer complaint of sudden acceleration and after studying thousands they realized customers perceived things that Toyota engineers would not classify as defects as concerning issues. These were problems like misunderstanding adaptive cruise control that adjusts the speed of the car automatically based on the speed of the vehicle in front of it, and surges in the RPM at a stop sign when the air conditioning comes on. There were also people stacking floor mats and failing to clip them down as the owner’s manual suggests. Toyota realized that these were issues of subjective perceptions and vehicle use, not real defects from an engineering perspective, but they were real to the customers. Their conclusion was that they were not taking these types of customer use and perception issues seriously enough and as a result made major changes in their organizational structure, in engineering, in training, and more to become an even more customer responsive company. This is despite what some have speculated they were already quite good at, and it is customer loyalty that got them through the recall crisis with their reputation as intact as it is. But they could do much more and they have been working hard at that with every part of the company reflecting and developing and implementing action plans to do more for the customer.
GM: What does it mean to have a “kaizen mind”? How does genchi genbutsu fit in with this?
Kaizen mind means going beyond a few improvement projects to develop thinking where you are never satisfied with the way things are. Even if you are meeting all your objectives and getting rave reviews you should feel unsettled and be able to see all the opportunities for improvement that still exist. A Toyota leader from the team leader of a few production employees to the executive suite can always tell you at any point in time what their next steps for improvement are, toward what end, and how they will achieve the future state they desire. A key part of understanding what to work on and how you are doing in achieving your goals is genchi genbutsu which means go and see the actual situation to deeply understand it. One thing Toyota concluded in their reflection on the recall crisis was that final decisions about recalls and how to respond to customer concerns were being made by a central quality group in Japan and they were too far from the reality in the U.S. to really understand it, thus genchi genbutsu was weak in that aspect. This led to major organization structure changes to strengthen regional autonomy, for example so North America could make more of their own decisions, including a regional quality office, promoting Americans to key executive positions in North America, creating regional quality centres scattered around North America, promoting capable American engineering executives to act as chief engineers, and more.
GM: What role does sustainability play at Toyota?
The global vision for the entire company for the decade, by 2020, is to create harmony between the cycles of manufacturing and the cycles of nature. That includes the vehicles themselves being environmentally friendly (recyclable, zero omissions, energy-efficient) and every plant, building, operation recycling and being environmentally friendly. It is at the very core of the mission of the company.
GM: 2008 was Toyota’s first annus horribilis. Did planning contribute to Toyota’s horrible year, or did it help them bounce back from it? How did Toyota’s relationship with its suppliers survive 2008?
Let’s get real here. In the worst recession since the Great Depression when the auto market plummeted by 30 to 40 per cent, after gas prices had sky-rocketed, and when the yen was reaching record heights, was it in any way possible for Toyota to skim over the problems as if none of this existed? Moreover, how many people or companies in the world had a plan for the 2008 global financial collapse? Find me some and I will find you some very rich people. All you had to do was short all your stocks. So for the most part it was a catastrophic event that could not be anticipated accurately or planned for. On the other hand, the spirit of reflection and kaizen says to find what you could have done better. Mainly, Toyota concluded that they had built up too much inventory of vehicles, especially large SUVs and trucks and there were signs before the summer of 2008 that gas prices would rise and demand would fall. They are very unhappy that they got in a situation of overproducing, which is a fundamental sin in the Toyota production system.
GM: 2009 saw the Sudden Unintended Acceleration (SUA) tragedy and subsequent crisis, with further recalls in early 2010. February 2010 then saw the mechanical problems with the Prius’ anti-lock braking system, and subsequent recall. Lesser companies would have gone to the wall amidst a storm of litigation, media feeding frenzy, and a collapse in confidence in the business…
Well there are many interesting aspects of that whole crisis that are covered in great detail in Toyota Under Fire so I will not go into detail here. We do debunk myths. For example it is as clear as is possible that the original SUA tragedy of the Saylor family was the result of the dealer putting the wrong all weather floor mat in their loaner vehicle, that was oversized, failing to secure it, and it entrapped the gas pedal. No defects in the vehicle – end of story. That let to incredible media speculation about electronic problems causing runaway, unstoppable Toyotas. The Prius ABS problem was not a safety issue in the normal sense. The ABS came on in unusual situations, namely at low speeds, when the customer did not expect it, and under these circumstances it felt in the pedal like the pedal was not working when the ABS was working just fine. In other words the brakes worked perfectly but it felt funny. The sticky pedals were found and reported in only twelve cars and there were no accidents. And this was the basis of a media campaign to destroy the reputation of a great company, congressional hearings, multibillion dollar class action law suits – only in America. It is interesting that Rice University conducted a survey of Toyota owners and non-owners in the worst part of the crisis (Feb to March, 2011) and Toyota customers rated Toyota very highly on quality and safety, and felt they were handling the crisis very well. Non-owners hammered them. They called this a “brand insulation” effect that came from a hard earned reputation for high quality, safety, and customer service over several decades.
GM: Then, 2011 – more recalls (possible fuel leak in the Toyota Avensis and Lexus IS 250 this time) and the Japanese earthquake disaster. Will 2011 be another horrible year for the company?
To be honest it is hard to take very seriously all the recalls of Toyota in 2011. By then they were so gun shy because the policy was recall first, ask questions about what really happened later. The whole industry recalled twice what they had in the prior year. If you look at the recalls one by one you find that a) they were for very minor issues, b) they had occurred in a handful of cars, and c) none of them had led to any accidents. There are always small nagging issues that theoretically could be in other cars sold and cause accidents, but problems that in the past would have been handled on a case by case basis or perhaps as a customer notification because recalls – for the entire industry in the United States. It is hard to make much of this (or I guess easy for some).
GM: Toyota has dealt with its perceived problems and short-comings better than any other motor manufacturer, yet it still suffers from an undeserved reputation for mechanical and electrical malfunctions in the USA that actually plague all marques (including Ford), not just Toyota. Is this American jingoism?
The short answer is yes. Once you are tried in the court of public opinion in America, and probably most countries, you are guilty, whatever the technicalities of what has been learned. Few people have the time or attention to sort through all the details and discover the real problems and separate fact from fiction. That is a major reason we wrote Toyota Under Fire. Those who have read it are surprised at how overblown the claims were about Toyota’s demise and about how effectively Toyota used the crisis as an opportunity to reflect and improve themselves. If you can take a mostly mythical set of problems and use that as leverage to shake up the whole company and make major improvements in quality and customer responsiveness, what could you do with real problems?
GM: What role did the Toyota call centre and its customer service representatives (CSRs) play? Why were they so effective and successful in turning worried customers into advocates?
Unlike most companies I have worked with that have studied the business case for outsourcing call centres Toyota has had a steadfast policy of keeping that in house. They see the CSRs as playing a critical role in establishing a relationship of trust with customers. So they train them like I have never seen CSRs trained, over months, and have extremely high standards along with empowering them to authorize significant expenditures on customers. Their call volume after the pedal recall was announced went overnight from a three thousand a day to 96,000 a day and they brought in people from throughout Toyota Motor Sales who had worked in the call centre, along with trusted contractors they had worked with over the years, and talked to each customer. Their task was to begin to rebuild trust and I think they played a critical role in undoing some of the damage in trust done by the unfounded media claims about runaway Toyotas. The engineers who very quickly found a cost effective solution to the sticky pedal problem, those in logistics who arranged the parts to be made and shipped to dealers at record speed, and the dealers who stayed open 24/7 to repair the cars all played a role in the amazing response to this crisis.
GM: After reaction came containment. You say “Perhaps the most important part of containment of a crisis is to ensure that you aren’t making decisions that will hamper future improvement kaizen efforts”. Can you expand on this for us?
The containment was in the form of working closely with NHTSA, responding to any additional problems, carefully crafting public releases, and getting out the facts about the problems that were often contrary to what the media were saying. There are many things that they could have done that would have hampered future kaizen, such as laying off people when production was stopped in the pedal crisis, slowing down payments to dealers when money was being spent at a phenomenal rate on the recall issues and public relations, blaming suppliers and more. Toyota did none of these things. But perhaps most important Toyota executives in Japan and North America, independently, concluded they would not blame customers and would not point the finger at others for the problems, whether the problems were real or imagined. Instead they would use this as an opportunity for deep reflection and improvement of the company. Pointing the finger outside to deflect blame to others is a sure recipe for killing the motivation for kaizen.
GM: What role did Akio Toyoda play during the crisis? Should all CEOs adopt his leadership style?
He was the leader in deciding not to blame others, to focus first on taking care of the customers, and to strengthen the core values of the company. He did not retreat from the core values. In this sense I think all CEOs should be clear on the core values of the company and be extremely reluctant to change or violate them. Principles like customer first, investing in people, using challenge to motivate improvement, genchi genbutsu, hansei are so general and not time sensitive. It is hard to imagine a situation where it would be a good idea to drop any of these principles. Akio Toyoda was raised working for Toyota to live these values to the point they are in his blood. The specific details of how he spoke and presented himself and aspects of his particular leadership style are only on the surface and leadership style issues do not need to be copied.
GM: Toyota did not hide behind a shield of PR and “spin”, but what role did the communications department play?
It is amazing how much work they do to monitor the environment and understand everything in such great depth and how little actually comes out in public releases. Input is many times the output. But every word in every public release is deeply scrutinized by many people. The philosophy seems to be that saying something incorrectly or inaccurately that has to be recanted is far more damaging, than the benefit of saying a lot quickly. This does make it appear to some that Toyota is slow, sluggish, and not on top of the situation. And we do point out instances, particularly leading up to the sticky pedal recall, where Toyota was too slow and they agree it was because of all the time it took to get agreement from Japan on every public release. That process has been streamlined, but the philosophy is still to be very careful about every word that is released to the public because they so want to be accurate based on a thorough investigation of the facts.
GM: Can you define the Toyota concept of “True North”?
It is the ideal that provides direction from the company. How do you know right from wrong, a good process from a bad process, a good way of leading versus a poor way of leading? True North is like pulling out the compass and knowing if you are going in the right direction. You will never actually reach the destination because perfection is not possible, but at least you know if you are headed in the right direction. Customer first is a True North value. You can always ask whether you have been acting in the best interests of the customer and putting their interests ahead of your short-term interests.
GM: You say “There’s an old phrase in corporate governance… “When everyone is responsible, no one is accountable””. What does “accepting responsibility” mean to Toyota?
Often we get a team together, agree on an action plan, and leave the meeting where each person feels that we as a group will somehow get this done. When things fall through the cracks it is not our fault, it was the team. That is directly counter to Toyota’s culture. There is a person’s name on each action item and they are responsible for following through and making sure it is successful. If it is not getting done they need to do some hansei, feel bad, and define a corrective action. Their boss will feel responsible because they are supposed to be developing the individual. That feeling of responsibility that is critical for hansei runs very deep and prevents actions from languishing and finger pointing at others.
GM: What lessons can be learnt from the crisis?
We describe a number in Toyota Under Fire, but underlying them is the importance of culture which is built up over decades, not a few off-sites or leadership pronouncements. Culture is what allowed every part of the organization to mobilize, contain the problem, then reflect, develop countermeasures, and improve. We often relegate crises to crisis management plans or departments or judge the company by how dynamic the CEO speech is on television. Those are very superficial and do not get to the heart of where the real work of the organization happens. It is the tens of thousands in engineering, sales, purchasing, customer relations management, manufacturing, logistics, and the rest that have to leap into action in a crisis and the reflect and learn. No amount of executive pontificating can make that happen harmoniously and effectively if the culture is weak.
GM: It’s a given that Toyota deals effectively and efficiently with mechanical defects through its recall system, but problems in design, build and quality-control are still evident through the issues with the Avensis and Lexus IS 250. Should Toyota (and other companies by extension) concentrate on prevention over cure?
I do not believe that those are unusual problems – there are always a few defects here and there and mostly those were pretty minor problems that got magnified by the fact that they were recalled. Also, I do not believe a single one of the recalls were quality control problems in a Toyota plant. They were fluky design issues. Nonetheless they were design errors and True North is zero defects. So Toyota has focused most of their effort in quality control on getting to the root cause which is designing in quality in the product development phase. They redeployed 2000 engineers to focus on quality control in the design cycle, they added an additional layer of “assistant managers” in engineering to have more directly teaching and coaching of junior engineers, they added four weeks to the development process focused exclusively on thoroughly evaluating each car from a quality point of view, including potential customer perceptions, they created a new training program for quality inspectors, and much more. The magnitude of change and depth of change is quite remarkable.
GM: Finally, are there any closing comments you would like to make?
Toyota became a model for so many organizations globally, a model of operational excellence, of strong values, of teaching every employee to be an expert in improvement, in focusing obsessively on the customer, and more. These are all very, very good things. That has probably been Toyota’s greatest contribution to society. In fact Toyota recently announced that The Toyota Production System Support Center (TSSC) that teaches other organizations the skills and philosophy of continuous improvement by doing actual projects with the organization to improve their processes has become a not-for-profit. Half of their activities will focus on helping other not-for-profit organizations including schools, health care organizations, and charitable organizations. They have already made some amazing transformations in processes and the way of thinking. I hope this great resource for society is not diminished by those who would profit by spreading false rumours about the decline of Toyota and its vehicles.
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