5-2007-Learning From Toyota - How Action Learning Con Foster Competitive Advantage in New Product...

8/6/2019 5-2007-Learning From Toyota - How Action Learning Con Foster Competitive Advantage in New Product Developme

1/58

Learning from Toyota: how action

learning can foster competitive

advantage in new product

development (NPD)

Barbara Fuchs

Liechtenstein University of Applied Sciences

New product development and commercialization are essential to entrepreneurial growth and

international competitiveness. Excellence in this area is strongly supported by individual and

organizational learning efforts. By analyzing how Japanese car manufacturer Toyota organizes

learning, this paper evaluates the potential of action learning to manage organizational change in

the area of new product development (NPD). The indications of the study are that actionlearning represents an efficient strategy to manage continuous change necessary for the successful

innovation of products and processes. Additionally, workers at Toyota involved in learning

practices similar to action learning are personally committed to their jobs and satisfied with their

careers. The findings also suggest that action learning offers a valuable toolkit approach to

anticipate and rapidly react to external shocks and changed market conditions. Managers are able

to revise and restructure work organization by reconciling grown bundles of unique capabilities

with new skill requirements to cope with strategic challenges.

Keywords: Corporate restructuring; New product development; Skill management; Toyota

production system; Work organization

Introduction

New product development is one of the key driving forces for companies to build and

maintain a competitive advantage in their existing markets, to enter and to create new

markets. Learning in relation to product development is crucial in three aspects. First,

only products that satisfy customer needs will be successful in the market. New

Action Learning: Research and Practice

Vol. 4, No. 1, April 2007, pp. 25 43

Liechtenstein University, Furst Franz Josef Strasse, FL-9490 Vaduz, Liechtenstein. Email:

barbara fuchs@hochschule li


2/58

products are either the result of improvements in design, features and functionality for

already defined customer segments. For example, car owners expect a new version of

their car model to exhibit the same basic characteristics but with a new touch in style

and improved performance. Or, companies are trying to acquire new customers bylaunching products with a high level of innovation. Many companies have historically

stressed traditional research and development in the belief that products stemming

from new technologies will almost automatically meet latent customer needs and

create new markets. However, growing experience with market failure or slow

market take up, has led to a shift from pure technology motivated innovation to a

more balanced mix of technology-push and market-pull orientation (Crawford,

1979; Cooper, 1990). Learning about existing customer needs is not easy, especially

when it comes to products which customers have not yet consumed. Traditional

market research can produce useful information, but its means are limited when it

comes to exploring latent needs and future demand. Customers are often unable to

articulate their expectations about products, although they can usually tell what

they like and do not like about existing products. They can also show how they use

artefacts which a new product might substitute. Interactive forms of learning, such

as lead-user methods and testing of user-behavior with prototypes are thus more

likely to identify subtle and equivocal customer needs that form the basis for

product success (Clark & Fujimoto, 1991; Herstatt & van Hippel, 1992). Moreover,

learning about customer needs must not be confined to the marketing department.

Every activity in the company interfacing with customers produces valuable customer

information, which needs to be systematically gathered, evaluated, and utilized fornew product development.

Secondly, new product success is closely linked to the overall production and mar-

keting capabilities of a company. A positive product experience is not limited to the

material product, but customer services and perceptions. For example, the procure-

ment of parts by suppliers engaged in illegal practices such as child labor, or a lack

of customer orientation in sales, can turn a good new product into a market failure.

Production and marketing capabilities can either spur innovation or impose signifi-

cant constraints on product innovations, e.g., due to outdated infrastructure or ineffi-

cient work organization. Developing new products should not be carried out solely by

employees in research and development, but has to be an integral part of the total pro-

duction system. In this respect, learning about potential product improvements and

innovation has to expand to the whole value chain of the company. Employees have

to be able and willing to put forward, promote and accept changes in work organiz-

ation as a driving force for or a result of innovation in technology, products and

processes (Morgan & Liker, 2006). Individual learning efforts have to be nurtured.

Positive results of individual insights have to be transformed into new general stan-

dards and new forms of work procedures.

The third aspect of learning in relation to innovation refers to organizational con-

tinuity and dynamic change. Companies often tend to develop a certain inertia oncethey have established successful market cultivation. New product development and

commercialization are ensured by a unique bundle of capabilities internalized and

26 B. Fuchs


3/58

practiced by all employees and hierarchies. But markets are not eternally stable and

unchanged. Thus, companies also have to build the capability to anticipate changes

in their competitive environment and to renew their skill set and routines. Otherwise,

they risk going out of business as they are unable to respond timely to external shocksor changed market conditions (Nobeoka, 2006). Companies that have built and

maintained a competitive advantage in new product development are capable of

both continuously improving their products and processes and, at a certain

moment in time, initiating and dealing with organizational discontinuity and disrup-

tive change. Supported by a specific culture, learning in these companies supports the

preservation and enhancement of existing capabilities as well as the acquisition and

implementation of new skills when needed (Senge, 1990; Dixon, 1994).

Although the importance of learning has been widely discussed in concepts of

learning organizations, innovation and knowledge management (Senge, 1990;

Nonaka & Takeuchi, 1995; Davenport & Prusak, 2000; Gupta & Govindarajan,

2000), practitioners in search of tangible strategies and tools to design and manage

individual and organizational learning are left with little to hand. Action learning

has the potential to fill this existing gap between largely theoretically oriented

approaches and corporate practice by proposing a conceptual framework enriched

with guidelines and tools for practitioners. Action learning also promises to allow

practitioners to systematically address various crucial aspects of learning, and to

manage individual development and organizational change.

The purpose of this contribution is to investigate the relationship between action

learning and a companys capability to manage individual skills and organizationaldevelopment in new product development. To do so, the first part briefly discusses

the concept of action learning and its properties relative to innovation and new

product development. In the second part, the focus shifts to the experiences of Japa-

nese car manufacturer Toyota. Toyota has built and maintained a competitive edge in

the global automotive industry for the past 50 years and has become the worlds

second largest automobile manufacture. Besides high profitability in manufacturing

and marketing, Toyota excels in terms of new product development with outstanding

lead-user times, short product cycles, high quality and technical innovations. To

understand Toyotas new product development in detail, a process perspective was

employed which allowed close exploration of its historic formation and how learning

was practiced in the traditional Toyota production system (TPS) that prevailed until

the early 1990s. This section also highlights how individual and organizational learn-

ing efforts were implemented and sustained by the system. The study then turns to

portraying Toyotas management of radical change in new product development in

response to external shocks, altering customer preferences and increasing global com-

petition. This analysis of the restructuring process and the organizational outcomes

suggest that Toyota has carried out a learning initiative comprising practices inherent

to action learning. Learning at Toyota supports customer oriented new product devel-

opment along the whole value chain, fosters system thinking materializing in highlyintegrated products, and allows Toyota to deal efficiently with changing market con-

ditions Individual learning is continuously promoted and transformed into new

Learning from Toyota 27


4/58

collective organizational standards, ultimately preventing costly corporate restructur-

ing as a last-resort strategy. Although embedded in Japanese industrial relations, the

findings indicate that learning at Toyota strongly resembles action learning. The paper

therefore ends with arguing that action learning is a comprehensive tool to leverageToyotas success in new product development, which is largely based upon learning

practices specific for highly dynamic and uncertain environments.1

The fruitful alliance of action learning and new product development

Action learning can be defined as a structured three-phase process that involves small

groups of people from different disciplines to come up with new solutions for real pro-

blems and to learn from this experience. The first phase in the process (system alpha)

comprises questioning, identification and detailed description of the problem to be

solved. Questioning aims at opening up fresh perspectives and prohibits participants

losing valuable time on researching the past. Questioning will result in a precise

written description of what needs to be solved. In the second phase (system beta) par-

ticipants of the group will thoroughly investigate the problem, apply and revise exist-

ing knowledge, come up with solutions and assure their implementation. It is in this

phase, that participants can apply and revise knowledge and skills, which they have

acquired in the past. The third phase (system gamma) consists of reflection on the

whole process, to assess and reassess what has been learned and what the conse-

quences are for self and others (Revans, 1982; Marquardt, 1999; Dilworth &

Willis, 2003). Reflection often occurs in every phase of action learning to increaseawareness for the individual learning progress. Each action learning phase is sup-

ported by a set of tools and methods to achieve the twofold results of problem-

solving and learning.

Action learning can be applied in various contexts and organizations looking for

new solutions to an existing problem. In particular, action learning exhibits a set of

properties patronizing innovation and new product development:

. Learning about customer needs, increasing customer interaction and communication.

Effective product development relies on a products design ability to create a posi-

tive product experience. This involves a complex translation of product information

from customers to engineers to production to sales and back to customers. Learn-

ing about customer needs, potential problems and requirements for procuring, pro-

ducing and marketing new products involves intense communication with parties

internal and external to the company. Information has to be gathered, evaluated

and exchanged between customers and company representatives, between func-

tional departments involved in the process, between the company and distributors

and with stakeholders interested in the success of new product development (Fuji-

moto & Clark, 1991).

Action learning sets are destined to serve these manifold communication needs

between customers stakeholders and all kind of professional experts Because

28 B. Fuchs


5/58

action learning sets are composed of persons who own a problemin this special case

coming up with a new product conceptthey are able to question existing product

solutions and production knowledge and to discuss new aspects and innovative

approaches. In addition, action learning sets are acting in an atmosphere of openand mutually agreed information access and exchange. In action learning the pro-

vision of information necessary to solve the problem, whether internal or external

to the company, is negotiated and agreed before the action learning set starts

working. There is a common understanding to deliberately share and provide infor-

mation. By reflecting on what set members have learned through the problem-

solving process, members can eventually come up not only with a solution, but

with proposals for general improvements in the retrieval of information, in the flow

of communication and in closing gaps of knowledge.

. Learning about product integration, fostering system thinking. New product develop-

ment is a complex task combining what customers want with what technology

can deliver and what customers can afford. Companies want to deliver customers

the best possible solution and to do it profitably. Product developers need to

have an understanding of the whole system and its interdependencies and be

willing to work with other functions and departments to deliver a fully integrated

product experience. Moreover, emerging problems in development are hardly

caused by a single factor, but multivariant influences that can only be detected if

developers are aware of the whole process. Analysis of outstanding companies in

product development have shown, that it is the overall pattern of consistency intheir total development system, including organizational structure, technical

skills, problem-solving processes, culture and strategy that makes them so success-

ful (Clark & Fujimoto, 1991).

Action learning sets are by definition heterogeneous. People with different back-

grounds, from different organizations and functions are asked to join a set to assure

diversity. During the first and second phase of an action learning program, set

members have to investigate the problem deeply, challenge existing knowledge and

try new approaches to solve the problem. This investigation must take into account

all influential factors and possible impacts of the suggested solution to the whole

system, for example discussing questions of how new products will affect overall pro-

duction cost and how customers will benefit from the overall integrated product

experience. In this context, action learning shows a common denominator with the

concept of lean thinking. Lean thinking targets the continuous improvement of the

whole value chain to better serve customers. Ideally, action learning set members

will apply lean thinking to solve their targeted problem by eliminating all intermediate

steps and hand-offs in the product development and production process not adding

value to the customer (Womack & Jones, 2003).

In the final phase of action learning (gamma system), reflection upon learning aimsat reconsidering the structures of the system and at deducing proposals for changing

the system if this is necessary If carried out accurately reflection will be structured



6/58

and individual insights into learning progress will be formally documented. By doing

so, individual learning experiences can be translated, e.g., with the help of learning

scripts and routines, into new general standards improving both organizational pro-

cesses and the capability to empower employees to acquire new knowledge(Revans, 1982; Donnenberg & De Loo, 2004).

. Learning across the organization, delegating competence and facilitating problem-solving.

Studies on product development have found that a project-oriented approach,

rather than a function-oriented approach, leads to a higher performance in terms

of lead time, efficiency for individual projects and productivity in new product

development (Takeuchi & Nonaka, 1986; Clark & Fujimoto, 1991). As the

reduction of product lifecycle time puts more pressure on companies, managing

new product development projects becomes a core competence. Successful compa-

nies are developing products in parallel asking project managers to facilitate tasks,

duties and interdependencies both in a single project and between projects. Top

management delegates major competences and responsibilities to their project

managers and engineering staff, who take over full responsibility for the overall

project and its outcome.

Before starting an action learning program, supporting management will name a

facilitator or set adviser. He or she will make sure that the set is provided with necess-

ary information, has access to experts and managers, is able to challenge and try

alternatives and that the set is acting within the set rules. The management willagree beforehand to devote resources to the action learning set, to make sure that

action learning set members have full competence to act as problem-solvers and

that solutions created by the set will be implemented. Even, if that means that the

organization has to be restructured. Facilitation and top management support inte-

grate the action learning set into the overall organization and make sure that their

solutions and learning will materialize at all levels of the organization.

Learning in Toyotas new product development organization

Since the 1980s, when Japanese domestic car production in units became the worlds

largest, the Toyota production system (TPS) has become synonymous with the con-

cepts of lean thinking and lean production, which are characterized by a customer-

oriented flow of the production process, just-in-time supplier relations, continuous

improvement (kaizen), flexible mass production and workers mobility (Shingo,

1989; Ohno, 1993; Liker, 2005). Although often portrayed as a smooth process,

during the early 1990s, Toyota had to cope with major problems concerning job sat-

isfaction, low profitability and costly new product development. However, Toyota

soon managed to overcome this crisis by employing traditional learning practices to

analyze its market position, define new strategies and timely restructure its organiz-

ation by growing new competences and renewing the overall production system.

30 B. Fuchs


7/58

The rise and fall of traditional new product development

When Toyota started out in the automobile business after the Second World War, the

Japanese car market was comparatively underdeveloped with an average of 100.000

units sold annually. European and US markets for personal cars had been steadily

evolving since the 1920s. In the US, the all-purpose road cruiser with a large body

and engine dominated the market offering a comfortable cabin and a soft ride. Euro-

pean cars were delivered in a greater variety based on outstanding space and fuel effi-

ciency, a firm ride, precise handling and functional sophistication. While western

producers were designing their cars for sophisticated, third-generation drivers, Japa-

nese companies serviced mainly first-time drivers with unstable consumer prefer-

ences. Early product concepts in Japan, e.g., the Toyota Corolla, were thus

borrowed from the US and Europe to test customer acceptance, learn about their pre-

ferences and win their loyalty (Clark & Fujimoto, 1991; Fujimoto, 1999).The product development cycle at Toyota started with intense market research and

analysis of future trends in consumption and production. Based on this information,

top managers defined high-level product strategies comprising quantitative perform-

ance and cost targets. Then the new product development department was charged

with designing the model (Hino, 2006). To accomplish the highly complex integration

of components and functions, Toyota established the so-called heavyweight project

manager organization in 1953 (Fujimoto, 1999).2 This project-oriented matrix

organization was characterized by the specific role of project managers coordinating

development across six functional divisions (design, engineering for body, chassis,

power and electronics, and product evaluation and testing) and the utilization of

the Japanese employment system.

For every single new car model a project manager was appointed, who was respon-

sible for the overall delivery of the product across all engineering functions, pro-

duction and marketing. Only charismatic engineers of increased seniority were

appointed to this position of project management. They had been trained in several

functions and departments of the company, and had acquired a broad set of skills

to understand how each function had to be incorporated for meeting strategic objec-

tives, requirements from production and marketing and quantitative targets.

Cooperation and integration with marketing was usually carried out through focusgroups and early prototype testing with potential customers to better understand

their needs and reasons for design rejection or willingness to purchase. Integration

with production was realized by the consultation of manufacturing experts and exten-

sive paper-based evaluation and checks of product design, concepts and production

requirements embedded in the overall Toyota production system (TPS). Project man-

agers were given high authority over functional division managers and were grouped

in the product planning division. The goal of this product planning division was to

make sure, that basic product concepts and learning from single projects would be

shared between project managers resulting in synergies and shared components. A

general manager was appointed to this division to ensure this transfer of knowledge

and support communication. During the 1960s Toyota had about 10 project



8/58

managers supervising five to six staff members in the product planning group and

another 5 to 20 engineers from functional divisions working on their single develop-

ment projects. Basic technical research was carried out at the Toyota main technical

center in Higashi-Fuji (Nobeoka, 2006).The early success of Toyotas new product development was also spurred by the tra-

ditional Japanese employment system fostering multiple skilled workers, system

thinking through on-the-job training and mandatory job rotation and the remunera-

tion of individual and work group learning efforts. Historically rooted in the rapid

transformation of traditional to modern society, education in Japan promotes the

acquisition of general rather than special skills.3 Socialization aims at compromising

individual desires to the collective objectives of society as a whole or to special groups,

e.g., a school class, sport team and work group. Social status and personal satisfaction

is mainly achieved by contributing to their success. Because pupils and students are

promoted every year to the next grade, they are eventually entering the labor

market at the same age. This equality of age has a strong impact on how personnel

and professional careers are managed, especially in large Japanese corporations

such as Toyota. Practically, all new employees are hired only on April 1st, when the

Japanese fiscal year starts. Although there are no contractual agreements or legal

bonds, newly hired regular employees are still guaranteed lifetime employment with

the opportunity of an internal career and seniority based wage progression until

retirement.

In return for this job security, Japanese companies expect new entrants to fully

commit to their jobs, to be highly mobile and flexible and to adapt quickly to new rou-tines and challenges (Yamada, 2000). Competition among employees of the same age

group is ensured through the promotional system resulting in different internal

careers and levels of compensation. Every new entrant is trained and supervised by

a senior manager for two years on the job irrespective of his or her formal education.

For example, new engineers are often trained in production, marketing and sales

during these two years before they start their first regular assignment in new

product development. At the end of this initial on-the-job training, individual per-

formance, talents and social skills are evaluated by the supervising and other senior

managers. Supervising managers are putting much emphasis on the junior employees

ability to learn, to define new job requirements from his or her experience, to commu-

nicate and to retrieve necessary information to accomplish the job. Based on this final

evaluation and comparison among new hires of the same age, employees are being

promoted for the next three to five years into their first position within a department

or section. Two types of promotion are possible. Outstanding individual contribution

to work groups and the company will be rewarded by a promotion to a higher rank in

the hierarchy. Rank-based promotion signifies an increase in social status, but has

almost no impact on job duties and responsibilities. Functional promotions also

include a change in occupational duties and leads to a higher status both in and

outside the organization.Both types of promotion are coupled with wage increases. Initially, all those who

enter the company with the same level of education are paid comparably and their

32 B. Fuchs


9/58

seniority-based part of the wage will increase at the same speed throughout their

whole career. Other wage parts are related to individual performance and are reflected

in wage increases related to rank-based and functional promotions. Individual com-

mitment and contribution to the companys success is also rewarded through abonus system. If the overall performance of the company and the economy are

good, bonuses are paid twice a year amounting up to 512 times monthly salaries,

otherwise no bonuses are being paid at all. Thus, the employment and wage system

offers Japanese enterprises the possibility to adjust easily rather the price and utiliz-

ation of labor than adjusting the number of their labor force. For the Japanese corpor-

ations, the financial merits of this system can be summarized by the full return of

investment from corporate training, the decrease of cost caused by recruiting, fluctu-

ation and termination, efficiency in information and rapid acceptance of technological

change among employees. The latter benefit from long-term employment, increasing

wages based on work group achievements and seniority, and prospects of an attractive

internal career (Aoki, 1988; Blumenthal, 1993; Boyer & Juillard, 1995; Cutcher-

Gershenfeld et al., 1998; Hanada, 1994, 1995). The following graph and table

summarize the traditional organization of new product development and illustrates

organizational learning aspects at Toyota from an action learning perspective.

During the 1960s and 1970s this type of organization proved to be very efficient.

As a part of the overall total production system, new product development profited

from technical progress in flexible automation, the close and just-in-time relationship

Fi 1 Learning in traditional NPD



10/58

with suppliers of new product parts and Toyotas total quality management. The posi-

tive economic climate of rapid catch-up growth also had a positive impact on car sales.

In 1972, Toyotas domestic production totaled over 10 million vehicles with cumulat-

ive exports almost reaching 4.5 million units, largely due to delivering new models at

high quality and competitive prices every two to three years.

However, the rapid growth had major effects on the efficiency of new product devel-

opment. The growing number of engineers resulted in a higher specialization and new

functional divisions making project management and product integration even more

complex. Functional division managers found it difficult to manage their engineers

often working on more than ten projects simultaneously exercising only a singletask in each project. Engineers were also inclined to add highly specialized features

to every single product resulting in fat designs with lots of proprietary components

Table 1. Learning from an action learning perspective

Learning for new product development Representations in action learning

About customers needs:

On-the job training of engineers in

marketing and sales

Early focus groups and prototype testing

instead of pure market research

Increasing customers orientation:

Learning-by-doing through structured job-

rotation

Communication and structured interaction

with customers to test preferences and

discover latent needs

About product integration:

Functional engineers working on different

projects simultaneously sharing know-how

and learning from doing their job in different

project work groups

Heavy-weight project managers dealing with

one project across all functions of product

development

General managers of product planning

making sure that learning about best

practices are shared between projects

Double-checking standard routines with

production and marketing for optimizing

design and integrating product

Fostering system thinking:

Organization of heterogeneous work and

project groups

Questioning product design from all aspects

from engineering to production to

marketing

Organization of quality circles including

employees and workers with different

backgrounds

Structured reflection of progress on product

design across the overall production system

Continuously across the organization:

On-the-job training

Facilitators at work to ensure action learning

sets progressWillingness and ability to learn and to

change incorporated into personal

evaluation, promotional career and

compensation systemIntense personal

supervision and mentoring by experienced

senior manager

Delegating competence and facilitating problem-

solving:

Each project member and group facilitated

by heavy-weight project manager with fullcompetence and support of top

management

High levels of autonomy of project managers

to come up with product solutions

Full management support to implement

new solutions if needed

Source: Own illustration.

34 B. Fuchs


11/58

and limited reusability of parts and technology for other models. This was commonly

supported by the project managers, who wanted to produce distinctive models that

stood out in the market beating competitors models by design and function (Liker,

2005; Morgan & Liker, 2006). The increasing degree of specialization jeopardizednot only the understanding of the entire product concept for integration, but the tra-

ditional patterns of work group based job rotation and functional promotion. Project

managers complained about increasing work load consumed only by integrating all

functions into their projects. By 1991, a project manager had to coordinate people

in 48 departments in 12 divisions withstanding double-checking with production

and marketing (Becker, 2006; Nobeoka, 2006). Furthermore, with the increasing

complexity of project management, general managers hardly supervised project man-

agers on engineering details, but entrusted them with high degrees of autonomy.

Slowly, sharing of knowledge, basic components and technologies between projects

diminished.

Until the late 1980s, the increasing shortfalls and cost in new product development

were not seen as a major problem. Sales of new car models usually surpassed initial

sales volume targets, largely driven by Toyotas innovative power and internationaliza-

tion. Growing market share and internationalization created nearly 7000 new jobs in

new product development feeding the traditional Toyota production system. Develo-

pers and designers, who literally made themselves redundant by optimizing the flow of

production were easily awarded new tasks and positions. Promotional wage gains were

topped by annual bonuses amounting up to 8-10 times the monthly base salary.

Although engineers in product development were expected to put in up to 20% ofunpaid overtime when work was expanding and deadlines had to be met, they were

fully committed and satisfied with work (Nobeoka, 2006).

The situation changed significantly when the Japanese bubble economy burst in

early 1990 leaving Toyota with dramatic slumps in domestic sales, pressures on

exports due to the appreciation of the yen against the dollar and increasing cost com-

petitiveness from overseas manufacturers amid mergers and acquisitions. When sales

dropped dramatically and prospects of a quick recovery deteriorated, the slowing pro-

ductivity in new product development suddenly became a burden to future competi-

tiveness. Toyota started to adjust labor cost by cutting bonuses, limiting promotions

and transferring people to lesser paid sales oriented positions. New hiring was post-

poned or substituted by hiring temporary workers who were not granted lifetime

employment. The reduction of subcontractors completed the attempts to cut cost.

However, in companies with a seniority system, downsizing by a reduction of new

hires is still costly as older, experienced workers are relatively overpaid in relation

to productivity.

Toyotas creative reconstruction of new product development

In 1990, Toyota launched an internal initiative called the Future Project 21 (FP21) totackle the persistent problems. The ultimate goal of FP21 was to identify problems of

the existing product development organization and to make it fit for the twenty first



12/58

century (Nobeoka, 1995). Toyota wanted to have a clear understanding which tra-

ditional skills, processes and routines would be further needed and which new ones

had to be built to maintain a competitive advantage in product development.

Toyotas goal was to maintain the traditional high frequency of individually designednew car models with high quality, but at improved profitability. Pursuant to lifetime

employment, reduction of the work force was not seen as a solution motivating

employees to engage in the project. Yoshiro Kinbara, an executive vice president in

charge of product and technology development, was appointed to lead the FP21

initiative that was scheduled for a year. Besides top management support, Kinbara

had full authority to recruit resources from different hierarchies, functions and

departments. The Nomura Research Institute was hired as an external consultant.

In the beginning, the work of the FP21 initiative leveraged Toyotas existing seven-

step problem-solving process as illustrated in Figure 2 (Nobeoka, 1995; Liker, 2005).

Special work groups were asked to identify the biggest obstacles when developing new

products across all functions. They were also asked to analyze and record in detail

which routines, parts and components could be used without limitation by all

product development projects and which ones they thought were unique to a specific

car model. Based on their results, all current development projects had to be categor-

ized into groups with similar engineering requirements. Findings were forwarded to

existing quality circles for further discussion and evaluation. FP21 work groups

were then requested to describe precisely the areas and problems investigated and

propose solutions. In the case of missing data or open questions, work groups were

extended either horizontally or vertically to gather information from separate

Fi 2 Practical problem solving in FP21

36 B. Fuchs


13/58

functional divisions or higher hierarchies. Final results of project work groups and

quality circles were eventually consolidated, reported and discussed with top manage-

ment by FP21 project leadership. Figure 2 summarizes the seven-step practical

problem-solving process and core results from FP21 during the process.FP21 project managers eventually delivered two root causes for declining pro-

ductivity in new product development. First, they named the inefficiency of increased

specialization hindering communication and exchange of information across func-

tions and projects. Second, they argued that development cost were too high

caused by too many proprietary car features and components. A new organizational

blueprint was presented to tackle the problems.

In 1992, Toyota restructured new product development into 4 development

centers: Center 1 was responsible for rear-wheel-drive platforms focusing on luxury

and high-quality vehicles, Center 2 for front-wheel drive platforms and vehicles in

the lower price segments, and Center 3 for utility and van vehicle platforms for rec-

reational cars. Center 4 was installed to make better use of technology research and

development. All engineers dealing with research and development on systemic com-

ponents that could be applied to all car models in the near future, e.g., air condition-

ing, supporting electronics, audio systems and new engines, were transferred from the

technical center in Higashi-Fuji to new product development (Nobeoka, 2006).

Research and development bases in North America, Europe, Australia and Asia

were continually established to take platforms from Japanese centers and to adapt it

to local consumer preferences.

The central product planning division was dissolved in three functional planningdivisions at each vehicle development center. Functional managers of this division

were made responsible to plan, manage and control tightly development cost and

quantitative performance targets. Project managers are still responsible for their

overall development projects, but have to report regularly to their functional man-

agers. The role of the project manager also had to change as Toyota acknowledged

new skills necessary. In the past crucial skills for project management could be

gained largely through experience. But with the emergence of new technologies,

e.g., CAD/CAM systems, younger employees were sometimes more qualified forproject management. By organizing project managers in a functional division,

senior staff can supervise junior project managers avoiding conflicts of authority

linked to seniority. Functional managers report the general manager of the center

on the projects progress and performance. General managers meet on a weekly

basis to discuss matters of product development and to make sure, that the knowl-

edge, skills, experiences and progress gained in single projects are transferred across

centers. The following Figure 3 shows the new organization of new product

development.

Within four years, the restructuring led to an average of 30% cost reduction per

development project, a decrease of prototypes by an average of 40% and shortening

of average lead time to about 18 months putting Toyota back into worldwide lead.Increase in component and platform sharing, intensive coordination between less

specialized departments and functions and improved communication and interaction



14/58

within and across centers were identified as the major sources for improvement. The

new organization also allowed Toyota to maintain traditional skills and routines such

as the traditional employment system and routines of continuous improvements with

the integration of new skills, for example the grouping and management of develop-

ment based around technology platforms. Reconsidering the properties of action

learning earlier introduced in relation to new product development, the actions and

results of FP21 can be summarized as follows:

Increasing customer orientation, communication and interaction:

. Establishment of 4 centers with center heads being responsible for inter-project

management and project managers ensuring intra-project communication.

. Reduction of functional divisions and engineering specialization lessening workload

for product integration.

. Transfer of research personnel into new centers with basic R&D.

Fostering system thinking:

. Optimization of customer-oriented product integration across the whole valuechain by sharing parts and components, improved interface management and

bettering cost performance ratio

Figure 3. New product development organization after restructuring

38 B. Fuchs


15/58

. Re-enforcement of traditional performance evaluation and promotion schemes to

reward individual employee efforts to improve the overall product development

and production process.

. Adaptation of wage system to better compensate for learning efforts, taking actionsand implementation of necessary change.

Facilitating problem-solving:

. Migration of project managers into new center functional divisions allowing for

coaching of junior project managers without conflicts of seniority.

. Maintenance of grown bundles of capabilities to continuously enhance skills and

processes, such as corporate culture, kaizen and quality circles.

. Retention of lifetime employment as an incentive for employees to commit to con-

tinuous and dynamic change in exchange for long-term job security.

The fundamental reorganization initiated through FP21 did not have a negative

effect on the number of total employees. On the contrary, before the reorganiz-

ation in 1991, about 11.500 persons were employed. After restructuring, each

of the four new centers employs up to 1900 engineers and handles between

three to five development projects. Additional staff is responsible for the planning

and controlling and supporting design, research and quality. In 1993, the number

of employees in the entire organization increased to nearly 12.000, partly due to

developing the RAV4,4 hitting the Japanese market in 1994. The RAV4 was

designed and produced by Center 3 in the new organization catering to consumers

desiring a car with a large cargo room and higher visibility, along with the maneu-

verability and fuel economy of a smaller car. This differentiating new product

concept formed the success of the new organization in integrating new customer

needs with cost-efficient, timely individual product design and production. Job sat-

isfaction and loyalty of employees could also be improved due to certain adap-

tations in the wage system. Before the reorganization, the wage system made

60% of wages dependant on efforts made monthly by each work team to reduce

its work duration and number of workers, implying an inevitable self-intensifica-

tion of individual workload. In 1993, this system was partly abolished and

reformed. The portion of the wage accumulated by work groups efforts toreduce work duration was brought down to 20% of the monthly salary. Instead

of being evaluated on a monthly basis by senior management, efforts to reduce

work duration are henceforth negotiated between management and workers at

the workshop level every six months based on workers own proposals (Shimizu,

1995, 1998).

Discussion and conclusions

After the Second World War Toyota excelled in new product development basedon a general positive economic climate and outstanding capabilities to conti-

nuously improve skills and work organization to deliver innovative cost competitive



16/58

cars for a broad range of consumers. In the early 1990s, caused by a sudden

change in the economic climate, Toyota faced severe problems of overcapacities,

overloaded product designs, high cost in development and increasing job

dissatisfaction. It became obvious that the traditional production system hadbeen supported easily with high growth rates enabling generous compensation to

workers and suppliers for their personal contributions, but needed some

adaptations. By a meticulous investigation into which individual and organization

capabilities should be continued and which ones had to be discontinued, Toyota

reorganized into an efficient multi-project center organization and regained its com-

petitiveness in new product development (Nobeoka, 1995; Cusumano & Nobeoka,

1998).

Having built the capability to learn from individual and work group efforts and to

derive actions from learning, Toyota was able to turn around new product develop-

ment in time, and to manage a necessary change in managerial mindsets without

destroying valuable skills, making staff redundant and burdening the company with

high cost of restructuring. To achieve these results, Toyota obviously made use of

learning practices that are largely comprised and promoted by the concept of action

learning. The following Table 2 captures some of these striking similarities in learning

routines and organization.

In conclusion, findings from Toyota suggest that action learning strongly facilitates

new product development for maintaining a competitive edge. It seems that by the

implementation of a single action learning program new product development will

result in increased customer orientation and a highly integrated new product experi-ence. If carried out properly and supported by top management, reflection and learn-

ing from such a single action learning program could trigger further learning

initiatives aimed not only at delivering a single product solution, but to transform

learning into new organizational routines. Action learning might also encourage

broader job descriptions with positive effects on highly innovative companies. Tech-

nological change is constantly increasing, but job-holders are more and more specia-

lizing in narrow occupations and career paths. Grouping together jobs that can be

performed by the same individuals would provide greater work variety, simplify the

job evaluation process and enable companies to be more responsive to rapidly chan-

ging demands of stakeholders. Without the tradition and benefits of Japanese internal

labour markets and lifetime employment, action learning has the potential to motivate

managers and individual employees to engage in long-term projects of learning and

change with positive feedbacks to work satisfaction and personal commitment.

Especially if combined with personal development, internal career paths, including

horizontal promotions in combination with higher social status, and compensation,

such as one-time bonuses for learning efforts, action learning will spur employees

willingness to investigate and propose improvements, to consider the overall

impacts of their actions to the company, to promote and support change. This

might in the end, as the case of Toyota demonstrates, allow a company to continu-ously grow and evolve new capabilities and to avoid costly and demoralizing

restructuring

40 B. Fuchs


17/58

Table 2. Learning at Toyotas new product development versus action learning

Aspired learning

outcomes

Learning at Toyota new product

development Action learning initiatives

1. Satisfying customer

needs (individual/

organizational)

Lead-user, focus-group based

needs research, testing and

evaluation

Standardized customer records

fed from all interfacing

company activities

Customer-oriented search for

solving problems; exploring

customer needs from different

angles and disciplines (system

beta)

2. Integrated

product experience

(individual/organizational)

7-step practical problem-solving

practice to locate and tackle

multivariant root causes

Enhancing and leveraging

explicit knowledge across

functions through instructive

training and extensive standard

documentation

Building and utilizing tacit

knowledge through on-the-job

training and job rotation

Avoiding high levels of

specialization

Involving experts from

manufacturing and marketing

into development projects

Delegation of overallcompetence to center heads

and project managers

3-step practical problem-solving

practice investigating and

delivering creative new

solutions

Enhancing communication and

interaction of persons from

different functions, positions

and disciplines

Equipped with resources,

competence and responsibility

to produce solution

3. Continuous

improvements and

dynamic

change(individual/organizational)

Kaizen

Efficient corporate bureaucracy

updated by learning outcomes

Vague job descriptions fostering

contextual adoption of skills

and competence

Promotions linked to personal

learning and transformation

into new organization standardsPerformance evaluation and

compensation connected with

learning efforts and results

Commitment to change in

exchange for lifetime

employment stability

Manager mindset promoting

learning and change

Implementation of FP21

Engrained reflection on learning

progress (system gamma) as a

basis for transforming learning

into new organizational

routines

Roles and competence of set

members are defined during the

process and utilized as needed

Engagement in action learningtriggering personal promotion

and higher social status

Top management support for

problem-solving and resulting

actions

Source: Own compilation.



18/58

Acknowledgements

Thanks are due to Otmar Donnenberg for reviewing earlier versions of this article;

Masanori Hanada, Akinori Isogai, Koichi Koizumi, Kiyohiko Nishimura, Toshio

Yamada and Toru Yoshimura for discussions, interviews, internal reports and material

from Toyota.

Notes

1. Insights into Toyota were gained through on-site research at Toyota, organizational

material, semi-structured interviews with engineers, workers and managers and

discussions with researchers during the period of 1993 to 1997 sponsored partly

by a Ph.D. scholarship from the Austrian government and partly by a foreign

research fellowship from the University of Tokyo under the supervision of

Professor K. Nishimura.

2. The term heavyweight project manager as a translation from the Japanese word

shusa was coined by Takahiro Fujimoto, who wanted to pinpoint the broad

array of competence, ability and responsibility of Toyotas chief engineers acting

as project managers.

3. Although the formal educational system was structurally adapted to the American

system after the Second World War, the contents and main educational goals

remained strongly influenced by pre-war social norms and values.

4. RAV4 stands for Recreational Active Vehicle with 4-Wheel Drive.

References

Aoki, M. (1988) Information, incentives and bargaining in the Japanese economy (Cambridge,

Cambridge University Press).

Becker, H. (2006) Phanomen Toyota. Erfolgsfaktor Ethik [Phenomenon Toyota. Corporate ethics as a

factor for success] (Berlin, Springer).

Blumenthal, T. (1993) Labor adjustment policies in Japan. Discussion paper series A, No. 285, The

Institute of Economic Research (Tokyo, Hitotsubashi University).

Boyer, R. & Juillard, M. (1995) Has the Japanese wage labour nexus reached its limits?, paper pre-

sented at the Symposium on Regulation Theory, Kumamoto Daigakuen University, September.

Clark, K. B. & Fujimoto, T. (1991) Product development performance. Strategy, organization and

management in the world auto industry (Boston, MA, Harvard Business School Press).

Cooper, R. G. (1990) New products: what distinguishes the winners, ResearchTechnology

Management, November/December, pp. 27 31.Crawford, M. C. (1979) New products failure ratefacts and fallacies, Research Management, 22,

913.

Cusumano, M. A. & Nobeoka, K. (1998) Thinking beyond lean: how multi project management is

transforming product development at Toyota (New York, Free Press).

Cutcher-Gershenfeld, J., Nitta, M., Barret, B. (1998)Knowledge-driven work. Unexpected lessons form

Japanese and United States work practices (New York, Oxford University Press).Davenport, T. H. & Prusak, L. (2000) Working knowledge. How organizations manage what they

(Boston MA Harvard Business School Press)

42 B. Fuchs


19/58

Dilworth, R. L. & Wallis, V. J. (2003) Action learning: images and pathways (Malabar, Krieger

Publishing Company).

Dixon, N. (1994) The organizational learning cycle. How we can learn collectively (London,

McGraw-Hill).

Donnenberg, O. & De Loo, I. (2004) Facilitating organizational development trough action learn-ingsome practical and theoretical considerations, Action Learning: Research and Practice,

1(2), 167184.

Fujimoto, T. (1999) The evolution of a manufacturing system at Toyota (New York, Oxford University

Press).

Gupta, A. K. & Govindarajan, V. (2000) Knowledge managements social dimension: lessons from

Nucor Steel, Sloan Management Review, 42(1), 7181.

Hanada, M. (1994) Modalites de la fixation des salaires au Japon et en France: Etude du bulletin de

paye de Nissan et Peugeot [Wage determination in Japan and France. An analysis of pay slips

at Nissan and Peugeot], Japan in extenso, 31, n8 double, marsavril.

Hanada, M. (1995) Roshi dakyo to chingin ketteinihon no chinrodo kankei no bunseki kijun to sono

shatei [Social compromise of labour and capitalanalytical standards for Japanese workrelations and their effects]. Working paper, Kumamoto Gakuen University.

Herstatt, C. & Von Hippel, E. (1992) From experience: developing new product concepts via the

lead user method: a case study in low tech field, Journal of Product Innovation Management,

9(3), 213221.

Hino, S. (2006) Inside the mind of Toyota: management principles for enduring growth (New York,

Productivity Press).

Liker, J. (2005) The Toyota way (New York, McGraw Hill).

Marquardt, M. (1999) Action learning in action (Palo Alto, CA, Davies-Black).

Morgan, J. M. & Liker, J. K. (2006) Toyota product development system: integrating people, process, and

technology (New York, Productivity Press).

Nobeoka, K. (1995) Reorganizing for multi-project management: Toyotas new structure of product devel-opment centers. Working paper, Research Institute for Economics and Business Administration

Kobe University.

Nobeoka, K. (2006) Reorientation in product development for multi-project management: the

Toyota case, in: C. Herstatt, C. Stockstrom, H. Tschirky & A. Nagahira (Eds) Management

of technology and innovation in Japan (Heidelberg, Springer).

Nonaka, I. & Takeuchi, H. (1995) The knowledge-creating company. How Japanese companies create the

dynamics of innovation (Oxford, Oxford University Press).

Ohno, T. (1993) Das Toyota Produktionssystem [The Toyota production system] (Frankfurt, Campus).

Revans, R. (1982) The origins and growth of action learning (Lund, Chartwell-Bratt).

Senge, P. M. (1990) The fifth discipline. The art and practice of the learning organization (London,

Random House).

Shimizu, K. (1995) Toyota Jidosha ni okeru rodo no ningenka (I, II) [Humanizing work at car man-

ufacturer Toyota]. Economic paper series, University Okayama, Vol. 27, No. 1 and No. 2.

Shimizu, K. (1998) Is Toyota abandoning Toyotism? Debate Michel FreyssenetKoichi Shimizu,

La Lettre du GERPISA (Groupe dEtudes et de Recherches Permanent sur lIndustrie et les Salarie s

de lAutomobile) [Research Letter of the Permanent Group for the Study of the Automobile

Industry and its Employees]. 119, January, 46.

Shingo Shigeo (1989) A study of the Toyota production system from an industrial engineering viewpoint

(New York, Productivity Press).

Womack, P. & Jones, D. T. (2003) Lean thinking: banish waste and create wealth in your corporation

(New York, Free Press).

Yamada, T. (2000) Japanese capitalism and the companyist compromise, in: R. Boyer (Ed.)Japanese

capitalism in crisis : a regulationist interpretation (New York, Routledge).



20/58

Reorganizing for Multi-Project Management:

Toyotas New Structure of Product Development Centers

April 4, 1995

Kentaro NobeokaResearch Institute for Economics and Business Administration

Kobe University

(Edited by Michael Cusumano, MIT)


21/58

1. Introduction

The purpose of this paper is to discuss an emerging organizational structure

for new product development at large Japanese automobile firms. This study

specifically focuses on describing the objectives and outcomes of changes in product

development organization implemented at Toyota in 1992 and 1993. This

reorganization is the most fundamental change in product development organization

that Toyota has implemented since it established the Shusa (product manager)

organization around 1965. The new organization is aimed at multi-project

management. It has three vehicle development centers in which multiple projects

are grouped together, in contrast to either traditional single-project-oriented or

function-oriented organizations.

Toyota has often been considered as a leader in adopting new organizational

structures and managerial processes in both manufacturing and product development.

For example, the Toyota production system, symbolized by its JIT and Kanban systems,

has been targeted as one of the best practices in manufacturing by many firms, not

only in automobiles but also in other industries. With respect to product development

organization, Toyota led in establishing a project-based management system, which

aimed at coordinating activities in different functional areas into a well-integrated

new product. Clark and Fujimoto (1991) have described this as an organization

featuring "heavyweight" product managers, who facilitate quick completion of a

pro jec t by in tegra t ing d i f fe rent func t ions such as des ign engineer ing ,

manufacturing engineering, and marketing. An MIT research project, the

International Motor Vehicle Program, referred to this approach as "lean product

development" (Womack et al., 1990).

In addition to the efficient development of individual products, many studies

have shown that Toyota and other Japanese leading automobile firms have been

developing new products to add new product lines or replace existing products more

frequently than U.S. or European competitors (Abegglen and Stalk, 1985; Womack et


22/58

al., 1990). Their capability in developing individual products efficiently through a

project-oriented organization helped implement the strategy of prolific product

introductions. This frequency has been overwhelming to some Western firms and has

been considered as one of the sources of Japanese firms competitive advantages in

world markets (Fujimoto and Sheriff, 1989, Nobeoka and Cusumano, 1994). In the past

15 years, for example, the number of passenger vehicle lines including sports utility

models at Toyota has more than doubled, rising from 8 to 18. Toyota also has

maintained its four-year product life cycles for most of its product lines, which is

much shorter than those in the Western firms.

In recent years, however, all Japanese manufacturers, including Toyota, have

become more concerned with efficiency in developing new products. In most of their

major markets, demand has slowed or even declined, while the cost competitiveness of

Japanese firms has considerably decreased because of the appreciation of the yen and

improvements at Western competitors. They have been facing profitability problems

that are related at least in part to the high costs of developing and manufacturing so

many new products or product variations. Therefore, Japanese firms are trying to

develop new products more efficiently while maintaining both a high frequency of

new product introductions and high design quality in individual projects.

In the highly competitive environment of the 1990s and the foreseeable future,

therefore, successful companies need to optimize not just one project at a time but a

portfolio of projects and technologies. In order to achieve economies of scale and

scope in product development as well as manufacturing, it is common for firms to

leverage their financial and engineering resource investments by reusing existing

technologies and designs in multiple projects. Firms also have to consider how to

share many components among multiple products without sacrificing an individual

product's design quality and distinctiveness. A key challenge to managers of product

development is to share technology across multiple product lines and across multiple

generat ions of products without over ly compromising design quali ty and

compet i t iveness .


23/58

A project management system that assigns too much autonomy to each product

manager may concentrate too heavily on developing multiple new products through

relatively autonomous project-oriented organizations. This system tends to result in

the development of many proprietary components for each project, and may require

excessive financial and engineering resources. Therefore, automobile manufacturers

may need a product development organization that better balances individual project

performance with inter-project coordination. For example, Chrysler's project-team

approach, used for the LH and Neon projects, might only be appropriate for

optimizing the development of one product at a time. In contrast, Toyota managers

have considered that a project-team approach is not an efficient way for large firms

to develop many products concurrently that could share similar technologies and

c om pone n t s .

Firms that try to optimize the management of multiple projects simultaneously

need an organization that is suitable for coordinating inter-project interfaces and

interdependencies. Because most product-management research has focused on the

management of single projects, this is not helpful for managers and researchers to

understand the complexity of coordinating multiple projects. It may seem that a

t rad i t iona l func t ion-or iented , r a the r than pro jec t -or ien ted , organiza t ion i s

appropriate to manage inter-project interdependencies. However, this type of

structure is weak at cross-functional integration. Functional organizations also lack a

mechanism to ensure that individual products retain distinctive features and a high

degree of what has been called product integrity. Therefore, organizations should

aim at achieving both cross-functional coordination and inter-project coordination

simultaneously through the way they organize and control multiple projects. This

goal cannot be achieved by either traditional project-oriented or function-oriented

organizations. The inter-project interdependencies must be coordinated within the

context of a specific project as an integrated system. To share components while

retaining the distinctiveness of individual products, firms also need organizational


24/58

structures and processes that enable system-level coordination across multiple

projec ts .

Toyota's reorganization into product development centers represents one way to

manage multiple projects. By establishing three centers, each of which contains

several vehicle development projects, Toyota has improved inter-project coordination

among technically related projects. At the same time, Toyota has strengthened the

authority of project managers over functional managers, and this has improved cross-

functional integration. These two goals may sound contradictory, but this paper

focuses on how Toyota has solved this contradiction. This paper is based on interviews

with three general managers, four product managers, fifteen engineers, and three

cost management planners between 1992 and 1994.

2. Problems of the Traditional Shusa Organization at Toyota

In 1953, Toyota assigned the first shusa, or product manager, to a new vehicle

project (Ikari, 1985)1 . When Toyota started product development for the 1955 Crown,

Kenya Nakamura became the first shusa to head a project. At that time he was a

member of the Engineering Management Division. The shusa organization was

strengthened in February 1965 when Toyota formally established the Product

Planning Division to organize and support shusas. At that time, there were already

ten shusas2 , and each shusa had five or six staff members, which totaled about 50

members in the division. The basic organizational structure with respect to the roles

of the Product Planning Division and shusas did not fundamentally change until 1992,

when Toyota introduced the center organization. One of the minor changes before

that time was a change in the title name for a product manager from "shusa" to "chief

Engineer" in 1989. In order to avoid any confusion, the rest of this paper will

1 I referred to this Ikari's book with respect to the information regarding the early period of the

Shusa organization in the 1950's and 1960's.2 Each of the ten shusas were responsible for Crown, Mark II, Publica, Century, Celica/Carina,


25/58

consistently use the new term, chief engineer, to refer to this position, rather than

shusa or product manager.

After having maintained the same basic structure for more than two decades, in

1990, Toyota decided to evaluate its entire product and technology development

organization and to change it if necessary, so that the organization would fit the

competitive environment at the end of the twentieth century. Toyota launched an

initiative, called the Future Project 21 (FP21), to study any problems in its product

development organizational structure and processes. The leader of the project was

Yoshiro Kinbara, an executive vice president in charge of product and technology

development. A manager at Toyota explained that no specific threats triggered this

project. At that time, Toyota was actually doing better than most of its competitors.

People at Toyota, however, recognized that organizations sometimes needed to be

reviewed and overhauled to continue to be competitive in a changing environment. A

consulting firm3 was hired for this project evaluated the organization performance at

Toyota as a starting point of the FP21.

Soon after the FP21 started its studies, the team identified two important

problems. These problems led Toyota to conclude that it would need a major

reorganization. First, there was an organizational problem. A primary point was that

Toyotas product development organizat ion had become less eff ic ient in

communication and had come to need more coordination tasks than before to manage

new product development. Second, the competitive environment for the Japanese

automobile industry started changing drastically around 1990, which seemed to

require Toyota to change its product development strategy and organization. Due to

various factors such as the appreciation of the yen, the Japanese auto industry faced

decreasing competitive advantages against most competitors in the world. The

following sections discuss these two problems in more detail.

3 Toyota chose the Nomura Research Institute, a Japanese consulting firm rather than prestigious

U.S. based firms such as McKinsey. A person at Toyota mentioned three reasons for this decision:

(1) A Japanese consulting firm may know more about Japanese firms. (2) Toyota wanted plans for

implementations, rather than grand strategies. And (3) a Japanese consulting firm seemed likely to


26/58

Organizational Problems

Figure 1 shows Toyota 's product development organization before its

reorganization in 1992. There were, at that time, as many as sixteen design

engineering functional divisions, and each had a functional manager. There were

about fifteen projects proceeding concurrently, even though Figure 1, a simplified

model, depicts only nine projects. Each project had a chief engineer, who was located

in the Product Planning Division under a general manager.

The product development organization was actually a huge matrix organization

rather than a project-based organization. Chief engineers and general managers in

the Product Planning Division did not directly oversee the engineering divisions in

this organization structure. However, chief engineers at Toyota were supposed to

have considerable authority over the entire product development process, including

different engineer ing stages, manufactur ing, and product concept creat ion.

According to the definition by Clark and Fujimoto (1991), chief engineers at Toyota

were supposed to be typical examples of heavyweight product managers.

However, in reality, the product development organization at Toyota had

become much larger than before, and chief engineers started to find it difficult to

control and integrate different functional divisions when making a new product. As

the number of product development projects increased, the number of engineers also

increased. At the same time, the degree of specialization in the engineering divisions

had become narrower, reflecting the increasing number of different engineering

divisions. As of December 1991, there were about 7000 people in the sixteen product

development engineering divisions. They were working, on average, on fifteen

concurrent projects. In addition, Toyota had a Research and Advanced Development

Group located at the Higashi-Fuji Technical Center. This had about 2000 additional

people4.

4 7000 people in the sixteen engineering divisions and 2000 people in the RAD group added up to


27/58

Design Div.

Body Engineering Div. 2

Interior Engineering Div.

Chassis Engineering Div. 2

Power Train Engineering Div. 1

Electronics Engineering Div. 1

Product Evaluation & Engineering

Vehicle Evaluation & Advanced E

Product Planning Div.

GeneralManager

ChiefEngineer

FunctionalManager

Body Engineering Div. 1

Chassis Engineering Div. 1




Electronics Engineering Div. 2



Higashi-Fuji Technical CenterResearch & Advanced

Development

In

1991,

achief

engineer

had

to

c

oordinate

people

in

48

dep

artments

in

12

divisions

to

ma

nage

new

product

developm

ent.

This

estimate

comes

from

Toyota's

internal

data

on

the

number

of

frequent

participants

in

meetings

a

p

roduct

manager

people

were

enga

ged

in

supporting

activities

such

as

patent

management,

certification

process


28/58

h e l d 5 . In 1976, there were only 5000 people in the entire product development

organization. A chief engineer had to coordinate only 23 departments in six divisions.

At that time, a chief engineer generally needed to talk with only six division

managers to integrate all the design engineering functions. This change indicated

that, during the fifteen years, coordination tasks had become much more complicated

for chief engineers.

In addition to this added complexity, there was another problem that made it

difficult for some chief engineers to manage a new product development project.

Some relatively junior chief engineers started to complain that they did not always

have enough authority over senior functional managers. Originally, only a limited

number of charismatic senior managers tended to rise to the position of chief

engineer. Toyota people often considered them as "gods" within their projects.

However, in recent years, Toyota has assigned relatively junior people to the position

of chief engineer. There are two reasons for this change. First, the number of chief

engineers required to cover all new vehicle projects had increased. Second, Toyota

recognized that people needed particular talents to be excellent chief engineers, and

their seniority was not as important as their ability.

Functional managers also found it difficult to spend sufficient time on

managing engineering details of all the vehicle projects, because most managers had

to oversee about fifteen different projects6 . They did not have enough time to oversee

complicated interfaces and interdependencies between these projects either. Due to

the large number of functional divisions and vehicle projects, each chief engineer

was able to arrange for regular meetings with all the relevant functional managers

only about once every two months.

5 Even though there were sixteen design engineering divisions, a chief engineer for a particular

project did not necessarily need to manage all of these. These data were based on Toyota's internal

measurements. The Company did not explain in detail its methodology for the measurements.6 There were a few exceptions. For example, as of 1991, there were already two separate body

engineering divisions, each of which was responsible for front-wheel-drive and rear-wheel-drive

vehicles, respectively. Therefore, each functional manager was in charge of about a half of the


29/58

There was a problem also at the engineering level. Because of their narrow

specialization, engineers did not have a system view of the entire product. For

example, some engineers only knew about the inner body of doors and did not know

much about the outer body because interior engineering and body engineering

divisions were separate. This kind of excessively narrow specialization had a negative

impact on the development of a well-integrated product. In addition, Toyota realized

that the narrow specialization caused another problem for engineers when they were

promoted to become a manager in charge of a larger engineering task such as the

entire body. It was difficult to train general engineering managers in this

organizational structure.

Engineers also found it difficult to have a strong sense of commitment to a

specific vehicle development. Because of the narrow specialization and the large

number of projects, each engineer frequently had to transfer between unrelated

vehicle projects. This may sound useful to transfer technical knowhow between

different projects. In reality, however, despite the frequent transfer of engineers,

Toyota found that it could not transfer system knowledge in this way. Nor was this

structure particularly appropriate for inter-project knowledge transfer.

Toyota's rapid growth in size partially caused these organizational problems.

One way to increase the chief engineer's authority and to eliminate problems caused

by narrow specialization is to create a pure project team organization, such as

Chrysler adopted for its Neon project. In this organization, almost all engineers

exclusively work for a single project for its entire duration. However, Toyota did not

consider the project team organization efficient. This type of organization can work

well for firms with a small number of projects and little technical interdependency

between multiple products concurrently being developed. Because Toyota has many

projects and a limited number of engineers, it cannot assign engineers to a specific

project for the entire duration of the project. The peak period for design engineering

work for engineers in a specific project lasts only about one and half or two years out

of a four-year project. Therefore, when a project task is outside of the peak,


30/58

engineers should be transferred to other projects to be utilized efficiently. In

addition, a change in the competitive environment discussed in the next section also

made the project team approach inappropri ate. In the new environment , effective

inter-project technology sharing has become more important.

Even the organization at Toyota prior to 1991 had problems with respect to

inter-project coordination. One of the policies of Toyota's chief engineer organization

was to encourage the autonomy of each chief engineer with respect to his own

vehicle project. General managers in the Product Planning Division above chief

engineers, therefore, did not supervise chief engineers in the details of individual

projects. In addition, the number of vehicle projects was too large for managers to

deal effectively with multi-project management issues such as resource allocation,

technology transfer, and component sharing across all projects.

Finally, there was a problem regarding coordination with the Research and

Advanced Development (RAD) Group located at the Higashi-Fuji Technical Center7 . The

center was maintained relatively independent of specific vehicle development

projects, so that it could focus on research and advanced engineering. However, both

vehicle projects and the RAD group were dissatisfied with this organizational

structure. Engineers for specific vehicle projects did not think that the RAD group

developed technologies that could be useful for their projects. On the other hand,

engineers in the RAD group felt frustrated because vehicle projects did not use

technologies that they developed. Toyota reached a conclusion that these two groups

needed more integration organizationally.

In summary, Toyota's product development organization had five problems.

These caused difficulties in both project integration and inter-project coordination:

1. There were too many functional engineering divisions with too narrow

specialization of engineers.

7 Because Research & Advanced Development Group was mainly located in the Higashi-Fuji

Technical Center, these two names are often interchangeably used. Higashi-Fuji is located about

150 miles east of Toyota's headquarters, which contains the primary functions for product

development. This paper uses a shorter name, RAD group, which is original here and is not used at


31/58

2. There were too many vehicle projects for each functional manager to manage

the engineering details of each project as well as inter-project coordination.

3. It had become much more complicated and difficult for chief engineers to

oversee all the engineering functions.

4. The chief engineer organizat ion was not appropriate for inter-project

coordina t ion .

5. The RAD group and vehicle projects were not sufficiently coordinated.

Change in the Competitive Environment

The competitive environment surrounding Japanese automobile firms started

changing around 1991. There were two interrelated issues. First, rapid growth in

production levels at the Japanese firms virtually ended. The aggressive product

strategy of Japanese automobile firms in the 1980s, such as frequent new product

introductions and replacements, had been partially based on their assumption of

continuous rapid growth. The new environment seemed to require some changes in

this strategy, as well as in company organizations. Second, the importance of cost

reduction became even more critical for international competition than before. In

addition to the appreciation of the yen, Japanese advantages in development and

manufacturing productivity have been diminishing. Both factors have had a strong

negative impact on the cost advantages they had been enjoying.

Because of these changes, the traditional chief engineer system, which

primarily focused on building the best individual products one at a time, needed to be

revised. Chief engineers always thought about the success of only their own projects.

A general manager who used to be a chief engineer said, "Each product manager

wanted to increase sales of his own project even by developing many new proprietary

components and by expanding the target customer segments of his project into other

product lines within Toyota." He explained that, during the period when Toyota's

production volume w

Date post:	07-Apr-2018
Category:	Documents
Upload:	charles-costa
View:	219 times
Download:	0 times

5-2007-Learning From Toyota - How Action Learning Con Foster Competitive Advantage in New Product...

Documents