Toyota Chairman Sees Local Interaction the Path Toward Global Success

November 14, 2007

Speaker
Fujio Cho, Chairman, Toyota Motor Corporation

Presider
Richard J. Wood, President, Japan Society

Toyota Chairman Fujio Cho spoke at Japan Society to celebrate the Society's centennial, which coincides with Toyota's 70th anniversary and the 50th anniversary of the founding of Toyota's U.S. sales company.

Mr. Cho began at Toyota in 1960 and was trained in the Toyota production system by Taichi Ohno, one of the creators of the system, observed Jim McDonald, Chairman of Japan Society, in his introductory remarks. "In the mid 1980s, Mr. Cho was asked to work on the project that prepared Toyota's first manufacturing facility in the U.S., and he was sent to Kentucky in 1987 and really got it off the ground," Mr. McDonald said.

In the 1930s, Toyota's automotive group started by taking apart Ford cars and reassembling them, to learn how they were put together, Mr. Cho recounted. After World War II, when the company began rebuilding its business, Toyota accounted for just 10 percent of auto production in Japan; Ford, in Yokohama, and General Motors, in Osaka, together commanded 90 percent. "At that time Toyota had little money, no modern equipment, and no advanced technology. The only thing the company could rely on was the chie, or innovative ideas, of its people."

Kiichiro Toyoda, the founder of what is now Toyota Motor, "issued a broad call for Toyota to catch up with U.S. auto makers in productivity in only three years," Mr. Cho recounted. What the company did was to focus on how to make do, and make more, with what they had. "They carefully differentiated between what was actual work and what was waste. They defined work as activities that generated value for the customer," and waste, or muda, "as any expenditure of time, effort, money, material or any other resources, that didn't generate value for the customer."

"I once had a boss who explained muda well. He pointed to a machine tool and said if metal shavings were pouring out of the machine, then the machine was working. His point was that time when no shavings were coming out was muda. And that we needed to continuously improve to reduce the waste."

"Before that time, how to recognize the difference between work and muda on the plant floor was not clear to me. But my boss's explanation straightened me out."

The operations management team "began by determining what was human work and what was machine work. Doing so, we found that real work was a small percentage of the total time that people were on the job."

"In the early days we assigned one operator to each machine. For example, we might have a lathe, a milling machine and a drill, and each machine would have its own operator. That resulted in a lot of muda," so the company put operators in charge of several machines, which "enabled each operator to accomplish a lot more work than before," Mr. Cho said.

"That might sound like simply increasing the burden on each operator, but we minimized the burden" by standardizing processes wherever possible and providing training for things that needed special skills, he explained. Standardization, training and the "multi-skill assignment" approach made for flexibility not just within a given factory, but also among different locations: "we can shift people from a plant that is not busy to a plant that is very busy."

Central to the Toyota production system are the concepts of jidoka, or intelligent automation, and just-in-time management, Mr. Cho said.

Jidoka gives workers and machines the ability to detect problems whenever they occur and solve them immediately, he explained. "A good example of applying jidoka to human work is our line stop system. Anyone on the production line in a Toyota plant can stop the line by pulling on an overhead cord or by pushing a button. We train people to recognize problems and to stop the line whenever they encounter a problem that cannot be fixed right away."

"Actually, the line doesn't stop immediately. Pulling the line stop cord lights a lamp to summon the team leader. If the team leader cannot solve the problem quickly, the line stops at the end of the work cycle. That provides some time to solve the problem and it prevents a process from passing on defective parts to the following process."

When the line stop system is activated, "the team leader is expected to figure out ways to prevent a reoccurrence of the problem," he added. In this way, "people grow and develop through the experience of encountering problems and taking the initiative in solving those problems. The Toyota production system "has fostered a corporate culture that welcomes new ideas and that encourages continuing improvement--kaizen."

The main tool of just-in-time management is the kanban, an information card that's attached to every item that flows through the production system, he said. When the item is used in making a vehicle, the card is removed and sent back along the line to signal the need for replenishment. In this way, output from workstation 1 is matched to the pace of production at workstation 2, and so forth.

With the oil crisis of 1973, Toyota's small, fuel-efficient cars became extremely popular in the U.S., but "the growing sales of Japanese imports resulted in serious trade friction between Japan and the United States," Mr. Cho continued. Honda opened a U.S. plant in 1982, Nissan in 1983. Toyota set up a joint venture with GM to make cars in California in 1984, and two years later, Toyota built its own plant in Georgetown, Kentucky.

Mr. Cho arrived at the Georgetown plant in 1987 as an Executive Vice President, and served there as President from 1989 until his return to Japan in 1996. His nine years in Kentucky, he said, "were some of the happiest and the most rewarding years of my life."

Toyota's American dealers were extremely demanding, he said. "The dealers knew that most of the 3,000 team members at the Kentucky plant had no experience in automobile manufacturing and they told us that if we couldn't match the quality of Japanese Camrys, their customers wouldn't buy Kentucky-made Camrys. Indeed achieving the same quality level in the U.S. was a huge challenge. But that was my job."

The company tutored its workers in basic manufacturing skills and the broader concepts of the Toyota production system: teamwork, quality assurance, standardized work processes and kaizen. "It took much effort to have our American team members really understand the necessity of using the line stop system," he remarked.

With hard work came success, and dealers were delighted that the product was just as good as that made in Japan, Mr. Cho said. In 1990, the Georgetown plant was ranked number one among North American vehicle plants in the JD Power and Associates initial-quality survey.

American and Japanese team members have learned much from each other, he reflected. In Japan, the shared culture of politeness means that "it is more important for the Japanese to figure out what the other party is really thinking instead of what he or she is saying," and so "what we say may be not exactly what we really mean. That kind of communication doesn't work in this society. In the U.S., I learned that you need to express yourself clearly and you need to take what people say at face value. We earned the trust of Kentuckians by stating clearly what we wanted to say and by making sure that we kept our word."

"Another thing I learned was the importance of clearly defining responsibility and authority. In America, people naturally assume that whoever is responsible for a job has full authority over the job. That is less clear in Japan. Working in the U.S. helped me see the connection between responsibility and authority."

"As the time approached for me to leave, we faced the question of whether my successor should be an American," and though eager to have Americans step in and manage the plant, the company decided it needed more time to make the transition. "We were concerned that without a proper and deep understanding of the Toyota way, we might end up with the kind of management where the company lays off people whenever sales decline. We might end up with the kind of management where the company chooses suppliers simply on the basis of price. That wouldn't be the Toyota way of doing business. It would destroy the culture that we had carefully fostered."

The company proceeded to spell out how to put its principles into practice, creating a document called The Toyota Way, he said, and establishing the Toyota Institute at Toyota City in Japan to teach management philosophy and methods to managers from Toyota units around the world; training at the institute is complemented with sessions in the U.S. at the University of Pennsylvania's Wharton School.

Toyota currently has 52 production facilities in 27 nations outside Japan, Mr. Cho said. "The continuing success of the Georgetown plant is an excellent example of our progress in promoting the Toyota Way globally. Today the plant employs some 7,000 people and produces about a half million cars per year. It is our largest plant outside of Japan. And--yes, the president there is now an American."

***

Japan Society President Richard Wood asked:

You began in Kentucky, and most recently, you opened a plant in Texas--both states with their own very distinctive cultures. Has the challenge of multiple cultures within the U.S. helped you in addressing the diversity you find in other countries?

"Everything started in the U.S. and I believe that what we have learned in the U.S. can be applied directly to other areas," Mr. Cho replied.

In the second or third year of operations at the Georgetown plant, the company planned an award program for employees who'd had no absences, he continued. The typical award at other companies was a check, say for $1,000, but "the Americans working in my company felt that this was not an exciting award," and they proposed a lottery instead: 10 names to be drawn from those with perfect attendance, with the winner to receive a Camry car.

"I said to them, 'That sounds appealing, but what about the others who didn't win the lottery?' And they said that we should just have a dinner for them, or something like that. From a Japanese perspective this is not acceptable, because the people who lost the lottery will complain about it to management. So, in thinking about all the complaints, I was concerned about doing that. But the U.S. managers said, 'You are here in the U.S., so listen to the Americans and it will be much more exciting.'"

"Our board members at that time were about half Americans and half Japanese. The Japanese were all against this proposal and the Americans were all for it. So, we were concerned, but because of the strong push by the Americans we did hold the Camry lottery, and as a result, we had a very huge success. Every year around December or January we had this lottery and I would pick out the 10 names from the lottery box. Everyone would be saying, 'Please Mr. Cho, pull my name--pull my name.'"

"After that, everyone worked very hard so that they could become candidates to receive the award. They would ask me, if they had been late or absent for a specific kind of reason, whether they were still candidates or were they off the list--and I would respond that, if that's the reason, it's okay, you still are a candidate. There were 18 people who served in the Gulf War and their largest concern was that if they went to Kuwait would they be still candidates for the award. And I responded to them that it's good for your country, so please go and you will still be candidates. I think this is an example of what kinds of cultural differences we had to overcome. Maybe there was a different opinion about what was correct, but it was very important to me to hear what the Americans were saying. It made a strong impression. Since I was in the U.S., I needed to listen to the American people. And so I received a proposal that I couldn't reject."

"Finally, I would like to say in a single word what I have learned the most--this is about fairness. In the U.S. you need to have a fair opportunity and in Japan you need to have a fair result."

--Katherine Hyde