Toyota's real secret sauce

Published on
May 16, 2023
Michael Ballé
Michael Ballé
Michael Ballé is lean author, executive coach and co-founder of Institut Lean France
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The hardest part of any learning journey is learning to learn and figuring out what we need to learn - as opposed to what we want to learn. Michael Balle questions whether we are learning the right lessons from the Toyota Production System - TPS - and points out a few things we are understudying.

In 2022, Toyota sold 1.12 million Corollas and 0.87 million Rav 4. By comparison, the Ford F-series sold 0.79 million and the Tesla Model Y 0.76. In total, Toyota sold 10.5 million vehicles last year, well ahead of rival Volkswagen with its 8.3. And yet Toyota is in trouble - again. Actually, Toyota is always in trouble. It botched the all-electric battle and is losing its lead. The question, then, is whether Toyota has suffered the fate that eventually befalls every dominant company and gone down through hubris to its younger rival Tesla. Perhaps. We shall see. For now, the Corolla is still the undisputed best-selling car in the world.

For those of us who believe Lean is Toyota's production system (TPS), we must regularly ask ourselves two difficult questions:

Is TPS still the best business model available?
Do we draw the right lessons from what we see and understand about TPS at Toyota?

TPS may not be the best business model forever - perhaps the "Tesla way" will eventually beat it. But TPS is so far the only framework that can be studied and experimented with, and the only viable alternative to finance (revenue appears as if by magic, operating costs must be reduced by slashing budgets, finance activities are where the real profits are, and anything unexpected can be counted as extraordinary expenses).

TPS is a learning system that tells us to constantly ask ourselves:

  1. Can we offer customers more value?
  2. Can we stop defects closer to their origins?
  3. Can we shorten the lead time between orders and deliveries?
  4. Can we better align workload and capacity?
  5. Can we engage people in studying their standards and try small steps to do things better?
  6. Can we further develop mutual trust with employees and suppliers by jointly solving problems and ensuring that systems work as they should?

Because these key questions build on each other, asking them demonstrates that TPS is indeed a learning system. For example, I would not recommend trying to reduce lead times without first looking at one's own quality, and conversely, it is difficult to work on quality responses without the pressure of just-in-time.

The TPS has been written about extensively and it is very well studied - but how does it relate to the Corolla which is the best-selling car in the world year after year? What do we see Toyota doing that we don't fully integrate into our thinking? Looking back over the past decade of Lean experiments and debates, I see a few points that we tend to underemphasize. I believe therein lies the answer to the questions above.

Customer value is cumulative

First and foremost, it is about products and customers. The goal of any business framework is to make better products that can be sold longer and more profitably. It is very easy to get distracted by all kinds of internal operational issues and miss (or actually work around) the elephant in the room: products or services must beat the competition in the minds, hearts and wallets of the customer. Toyota's approach is unique. It does not look for the brilliant products that will take over the market and gobble up all the chips. It carefully generates - painstakingly, you might think - value for customers across generations of products.

Top Gear's car maven Jeremy Clarkson has entertained us with great videos about how he hates the Corolla, the best-selling car ever because it is so boring ("as interesting as the night sky when it's cloudy" is one of my favorites). Best sold since 1997? How can that be? Well, if we forget organization for a moment and look at the product, we can see that the TPS has a clear framework for designing it: what value do we need to create? What waste do we need to eliminate? Instead of starting with a blank page, they are constantly asking what additional value they need to provide (taking into account current customer tastes) and what customer pain points they can eliminate (including price). As I write those lines, I ask myself: what am I saying that adds anything to what has been written before about Lean ? What waste do I need to eliminate? Do I really need to repeat the steps of TPS every time? Clarkson's point is that the Corolla sells not because it is the most exciting car on the road, but because Toyota has systematically taken the pain points out of the Corolla driving experience, and most drivers are looking for convenience and safety rather than a rush off the road - as well as reliability and resale value.

This means starting with a full understanding of previous models and competitors' movements. It's not perfect. One explanation for Toyota's failure with their all-electric car is that they tried to fit it into the hybrid platform under the assumption that the solid-state battery they are working on would work (it does, but autonomy is poor). The TPS brings them back to square one: breaking down Tesla's best-selling models. Will the Toyota engineers learn the right lesson from their return to basics? Time will tell, but the method is clear.

Kaizen bridges the gap between maintenance and innovation

Products and services are created and delivered through processes. Processes require both working systems and trained personnel to function properly. Processes do not align well when tools become blunt, parts are used, dirt intrudes, new materials do not respond as expected, etc. People then become confused, lose focus, don't know what they don't know, forget what they should know, have good days and bad days, and change their minds about what they are doing and why. The work environment changes daily and offers new challenges every other day. Consequently, nothing goes as planned.

A process is a sequence of dependent events that happen exactly as planned. This is a very rare case in real life of how systems behave. In a system, parts react to each other and rarely exactly as predicted. The more pressure one puts on one element of the system, the greater the reaction of the others - often not at all what was anticipated. A 20-year obsession with processes has blinded us to systems, which behave more like living ecosystems than machines. The only concrete way to keep a system under control is to perform immediate maintenance every day: both checking that things are working as they should and correcting abnormal situations immediately. That way you keep the system under control and also learn more about it and how it behaves.

Most Toyota factories around the world produce in two shifts and do maintenance during the night shift. This makes perfect sense, because a night shift is necessarily more expensive than a day shift, and we all know that night shifts are a world unto themselves. But we often fail to draw the deeper lessons from this practice: investing too much in maintenance, to create performance from working systems, and trusting these systems because you know them.

The very first presentation I came across on Kaizen by Professor Masaaki Imaï in the late 1980s introduced Kaizen as the gap between maintenance and innovation.

Kaizen as a boundary between maintenance and innovation

Society's current obsession with digital innovation makes us forget how deep this graph actually goes. As a mental experiment, imagine our society if we had doubled the investment in maintenance in hospitals, schools, trains or R&D over the past 20 years?

There is always time for a learning moment

Setting aside the die-hard Taylorists who see in the Lean tools ways to perfect processes by imposing more detailed work rules on people (and there are still many), most serious students of Lean have accepted that "to make products, we must first make people" is the basis of Toyota's paradigm shift. Yet it is not easy to see what this means in practice. It is difficult to know where Toyota stands now that it has become such a large company. However, veterans all remember the teachable moments when their boss stopped work to show, discuss, demand Kaizen or just challenge a situation.

This is not as simple or easy as it sounds. A few days ago I was in a banal steering committee and a point came up that needed clarification and discussion because it was central to the mission of the organization - something everyone should understand and have an opinion on. It was not an easy discussion because it was not an easy topic, but it was an instructive one. Still, the pressure to return to the agenda and get through micromanagement decisions was palpable. Prioritizing learning moments over production requires real commitment.

First, it presupposes that the senior person has something to teach and knows how to do it - very few jobs are so conceived. MBA programs teach people to optimize current processes and budgets to make better use of scary activities now, rarely to prepare teams for tomorrow. Second, people need to be open to instruction. For that, we need to think deeply about how the work environment makes room for readiness, encouragement of learning and deliberate practice (the three basic laws of learning as identified by early researchers) - or not.

Learning and teaching as a core part of any job is a core part of the Lean worldview and requires some working theory of how to learn and teach. The dominance of the theory of giving instructions and checking execution does not leave much room for learning and teaching time, nor room to understand that connecting the dots rarely happens when someone is focused on performing a task, but on the contrary when he is interrupted by a new idea, either from another domain or by reassembling routine tasks - the whole point of Kaizen.

Always ask: what is true quality?

"What is a good app?" "What is good service in a hotel?" "What is a good espresso machine?" "What is a good plastic molded part?" Quality is always taken for granted because quality is so hard to define. However, it is what makes sense to customers and what customers ultimately look for and buy (it can also mean different things to different customers or even to the same customer at different times or with different uses). Because "quality demand" is so open-ended, we tend to delineate it by defining "standards." With these standards, the question shifts from "are we doing the right things" to "are we doing things right." Clearly, in an ideal world, we want to do the right things right.

are we doing the right things

Because doing things right is easier to recognize than doing things badly, managers tend to focus on solving that question rather than wondering whether they are doing the right thing or the wrong thing. While that is precisely where it is usually difficult to do the right things, and thus will be done badly at first until the learning process begins.

The issue is that true quality lies in doing the right thing, not in doing the wrong thing right. The real quality question is never closed: put product standards, material and part standards, education and training standards, tolerances and instrument settings to the test. Do these standards actually deliver quality to customers? Or do they serve to reassure the organization that everything is in order? The purpose of questioning standards is to examine measurement methods and contrast the relative effect of quality characteristics against customers' opinions of the product until you reach a consensus on defects and shortcomings of the current production process.

The purpose of asking about "real quality" is to uncover latent defects, pieces of work that we think are in order but which in practice do not satisfy the customer. To do this, we must visualize the client's own processes, see where, when and how they use our work, and identify what helps them and what hinders them. In other words, where the pain points are. Brace yourself: this will always be a difficult discussion, simply because it is such an open question, and there are more mysteries than facts. Yet one of the key secrets to creating winning products is to constantly question quality standards and discuss endlessly what exactly true quality is.

Revealing real problems to address difficulty

At the heart of every problem is a real difficulty: physics doesn't allow a process, machines can't work as accurately, someone doesn't or doesn't know how to do it, and so on. Instead of stopping at this difficulty, the goal of problem solving is to bring it to the surface and then find a way to do something different with it. To be creative. To come together and look at the situation differently and find a way around the obstacle. As Duncker's example visualizes, if the main road to the fort is too well defended, find another way in. Use the difficulty to discover what can be done differently.

Productive discussions are often difficult. Since Adam Smith's pin factory in the late 18th century, organizing has been about dividing labor to take advantage of specialization and avoid duplication of effort, to extract economies of scale from volume. This arrangement makes sense in stable situations where volume is guaranteed; but it is also terribly inflexible and produces a lot of waste in terms of rework, inventories, backlogs, overinvestment and endless problems. Yet it is also useful to avoid conflict by separating activities and housing them in different teams, departments or functions so that everyone can continue producing without ever thinking that, in the words of Kaoru Ishikawa, the next process is the customer and wondering what true quality means to both the proximate and ultimate customer.

Organizations avoid changes in the environment or internal challenges through various defensive routines: they focus on side issues, to divert attention from the real "elephant in the room" and to avoid authentic conversations about doing right/wrong things. These defensive routines allow the organization to continue to function whether it performs for customers or not. It is not that organizations do not face problems, but rather that they choose problems for which they have workable solutions - what used to be called the "garbage can theory" (an organization is a collection of choices in search of problems, problems and situations in which they can be aired, and solutions in search of problems they can answer).

Lean techniques such as kanban, jidoka, or standardized work are all about revealing the real problem, the gap with the ideal delivery to set the scene for genchi genbutsu: go to the site (Gemba Walk), see the real problem, listen to the people in their context, create consensus on the real problem, and obtain a commitment to Kaizen. True Kaizen is bringing value closer to the customer, which is difficult because things are how they are for a reason, and so we have to accept that for the team the difficulty is the way, the difficulty is the opportunity to understand deeper and find an alternative.

Kaizen bridges the gap between maintenance and innovation.

Sharing the victories and building confidence

When I first delved into Toyota's approach to supplier contact, I saw how Toyota engineers made monthly visits to a supplier's production line to help it improve quality, delivery and productivity (this makes perfect sense in terms of maintenance and kaizen). In two years of continuous improvement, the line increased its productivity by 30% and achieved flawless delivery through high flexibility (batches of less than an hour). Toyota never asked about this productivity improvement in price negotiations, and I wondered where the profit lay, other than in securing supply, which, as agreed, has a much higher value in the TPS than in other production systems. However, it turned out that the work on the line led the engineers to redesign the product and process for the next generation of products so that they could achieve a total cost reduction of 30%! Toyota then split the difference, keeping 15% and leaving 15% to the supplier. Imagine doing this product cycle after product cycle?

This was extraordinary in two ways. First, Toyota's engineers knew where to look for profits, and that was not the direct productivity of the line, but what could be learned from it for the next line. Next, they knew how to distribute the gains to build confidence to do it again on the next cycle. Once I realized that trust was a fundamental element of the system, I began to see it everywhere in the way Toyota works. At one point, the supplier stopped supplying Toyota with parts. Yet the Toyota sensei went to visit the line and consult with his deshi at the supplier. "Why shouldn't I?" he asked in surprise when asked. Good relationships are more important than daily business.

Trust is the juice that makes the human engine run. You want to deal with people whose competence you trust because you trust them to do the right thing and win. You want to deal with people who you can trust to share their gains with you, who care about your circumstances and what happens to you. Building relationships means both finding gains and sharing them.

Trust is not a "nice to have" in the human experience. It is central. Trust that people support you, trust that machines work reliably, trust that you understand how the world works, and trust in your own focus to build the work of art that is your life. The whole TPS system is a learning system to build trust, with customers, with employees, with machines and sites, with suppliers, ensuring smoother collaboration and flow, both in work and in the psychological sense of intense engagement, focus and satisfaction in the present activity and moment.

So what has 30 years of discovery and experience with the TPS taught us?

What should we train ourselves to consciously focus on each day to enrich our professional lives? If I had to sum it up in a pithy equation, I would always keep these four components in mind:

  • Where is true quality for customers and how can we improve it?
  • What is the path to improving true quality, with whom and how do we learn together?
  • What are the wasteful activities that slow us down and that we need to reduce?
  • How long will it take to do all this, and can we speed it up?

Or something like:

I realize this takes us far from improving processes by making parts move faster in the material flow, far from the mechanical view of organizations, but isn't that the whole point of learning journeys? Sure, we learn what we want to learn, but how do we discover what we really need to learn? How do we step back to see that what we find is limited by the questions we have and our narrow focus on what we came to look for in the first place?

What has Toyota really added to our knowledge of how to lead organizations effectively, sustainably and responsibly? This is a more difficult question than one might think at first glance. I once had the opportunity to ask Mr. Takehiko Harada, who had worked directly with Taiichi Ohno, what he thought the West had done wrong about TPS. "Our first goal was the training of subordinates," he replied. "And we aimed for total optimization rather than partial optimization." To learn, the learner must be ready to learn, which means hearing only the answers we have questions about. To truly learn, we must seek the questions that fit the answers we are presented with.

The author

Michael Balle
Michael Ballé is lean author, executive coach and co-founder of Institut Lean France

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