4166229

The Toyota Way in Services: The Case of Lean Product Development
Author(s): Jeffrey K. Liker and James M. Morgan

Source: Academy of Management Perspectives, Vol. 20, No. 2 (May, 2006), pp. 5-20
Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/4166229
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2006
Uker
and
The
Morgan
Toyota
Product
Jeffrey
K.
Liker
Executive
Toyota's
Deve
and
James
M.
Overview
Production
System
continual
improvement
and
q
stream
processes
as
part
of
a
"lean
initiative,"
and
the
lean
and
is
even
spreading
to
servic
approaches-quick
fixes
to
re
a
true
learning
culture.
We
o
beyond
manufacturing
to
any
integrates
and
people,
coordinated
processes
effort
for
ch
Introduction
the
hard
way
tools
and
tech
hese
days
it
is
difficult
to
school
curriculum
witho
improvement.
of
the
firm
sep
amples
of
Toyota
and
Toy
from
Viewed
as
one
of the
the long
exc
world,
mosteffective,
cases
and
disc
lea
floor.
Managem
the
famed
Toyota
Produc
the
shop
floor
is
the
foundation
for
wh
in "think
the
board
movement
to
lean
clearly
in
the
companies
in
the
world
ha
The
Machine
"lean
initiative,"
and
this
et
al.
1990)
in
ing
to
a
diverse
range
of
de
the
defense essentially
department,
h
many
compan
tutions,
and
construction
Way
(Wo
(2004) Thinking
became
an
in
was
in
factdee
th
it
delves
more
and have
thinking
emphasi
tha
and
techniques
generall
just
one
chapt
manufacturing.
World.
The
b
Many
manufacturing
working
toge
co
because
culture
*
Jeffrey
K.
Liker
James
M.
Morgan,
is
Professor
of
Ph.D.
is
Direct
Academy of Management
Perspeclives May~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
May
6 Academy of Management
Perspedives
want while eliminating waste in the value stream

and striving for perfection. This was not just a
manufacturing book.
Since the 1980s, companies throughout the
mance is the quality of new Toyota products.

Objective data show that Toyota excels in new
product quality. The J.D. Powers survey for initial
manufacturing. Now it is almost a given that a
quality in the first 90 days of ownership is an

indicator, which Toyota has dominated during
this decade, with 39 first-place vehicles since
manufacturing company needs some sort of "lean"
2001, including a phenomenal ranking of 10 first
world have been looking to Toyota as a model for
program to be competitive. The traditional bigbatch mass production model has been supplanted
by a lean production model. However, the movement recently has gone beyond the shop floor to
white-collar offices and is even spreading to service industries. For example, one would be hardpressed to find a hospital in the United States that
is not aware of lean principles and considering

some sort of lean program. Applying lean concepts
to technical and service operations, where work is
much less repetitive than the shop floor and the
product less tangible, is not straightforward, how-
place vehicles out of 16 categories in 2005. Regarding speed to market and product freshness,
Toyota can consistently bring a new body with
carry-over chassis and powertrain (the most com-
mon type of automotive product development)

from styling freeze to start of production in just 15
months; more basic categories of vehicles, such as

Corolla, require only 12 months. This compares to
competitors who require from 20 to 30 months to
accomplish the same task.
This article outlines and illustrates the man-
agement principles of the Toyota product development system that can be applied to any
Clearer lessons for lean services can be found
technical or service process (for further infornot in the manufacturing side but by examiningmation, see Morgan and Liker, 2006). It proToyota's Product Development System, which is
vides a different look at how the basic principles
thriving on lean principles that were derived sepof the Toyota Way can apply to service operaarately from the manufacturing operation. Toyota
tions. We argue that it is a true systems aphas taken the same underlying principles of the
proach that effectively integrates people, processes, and technology. Toyota's approach to
Toyota Way and evolved a product development
system that is second to none. It is lean in the
product development has evolved as a living
broadest sense-customer focused, continually
system with its own trials and tribulations, but a
improved through waste reduction, and tightly
consistent trend upward through ongoing learning and continuous improvement supports the
integrated with upstream and downstream provalue in its approach.
cesses as part of a lean value chain.
ever.
Toyota's Product Development System has en-
Review of TPS Principles

abled it to consistently develop higher quality
he
Toyota
Production System (TPS) is the
vehicles faster, for less cost, and at a greater profit
than their competitors. They also manage more best-known example of lean processes in acnew vehicle launches annually than most of their tion. It has become a model for competitive
manufacturing throughout the world. It has been
competitors, thus creating a steady flow of highquality new products to meet consumer demand.evolving within Toyota for decades, although a
central tenet of the Toyota way prevented anyone
This ability has fueled industry-leading profits
(reaching a Japanese record of ten billion dollarsfrom writing it down. The tenet is that serious
learning only comes from action at the gembaby 2004 and exceeding that in 2005) and a market
where the work is done. So drawing pictures and
capitalization greater than GM, Ford, and DCX
models of TPS is not value added.
combined with a continuing growth in market
share targeted to be 15 percent of the global Eventually, the theory behind TPS was repre-
sented as a house. The TPS house has become a

market, which will make Toyota the world's largest auto maker.
cultural icon in the manufacturing world. The
One of the important drivers of this perfor- simplest version is shown in Figure 1. It is repre-
2006 2006
Liker
Likerand
and Morgan
Morgan
77
Figure 1
The Toyota Production System House
Best Quality - Lowest Cost - Shortest Lead Time - Best Safety - High Morale
through shortening the production flow by eliminating waste
Just-In-Time Peoplc & Teamwork Jidoka

"Right part, right amount, --_ -- (In-station quality'
right time" -- _- "Stop to fix problems"
Reduce
Continuous Improvement
Make problems
inventory, to
surface
problems
visible
Waste Reduction
Leveled Production (heijunka)

Stable and Standardized Processes
Jidoka
sented in this way because a house is a system and
only as strong as the weakest part of the system.
Jidoka is a lesser-known and more complex conWith a weak foundation or a weak pillar, the
cept. It represents a machine with human intellihouse is not stable, even if other parts are very
gence. The intelligence is to do one simple taskstrong. The parts work together to create the
detect a deviation from a standard and stop itself
whole. The parts are as follows:
while waiting for help. This concept has been
Just-in-Time
extended to manual processes in which operators

pull a cord and stop production when there is any
problem. When a machine or person stops for
This aspect of the house is the most well-problems, they also need to signal for help. An
known. It relates to making material flow
andon is the use of lights and sounds to call for
through processes very fast, getting the right

help. Pull the cord, and an andon lights up, music
part to the right place at the right time. We
plays, and a team leader or group leader is called to
might create a manufacturing cell where raw
come help-not in the next few hours but in the
material moves from operation to operation one
next few seconds. By stopping for problems the
piece at a time without interruption. In some
problem is contained in an area before it leaks out,
cases, it is necessary to interrupt the flow to
possibly even leading to a defect for the customer.
connect separate processes together in some

Problems are also constantly being surfaced, lead-
other way. For example, a stamping press might

ing to continuous improvement.
build in batches between changes of dies and

Heijunka and Stable, Standardized Processes
cannot be practically put in a cell. So a supermarket concept was used, with stamping refillThe foundation of the house needs to provide the
ing a store up to certain maximum levels overall

of
stability on which just-in-time systems can
inventory and then waiting to replenish only

be built and the system constantly adjusted by stop-
what the customer takes away. Instructions from

ping to fix problems. Heijunka means leveling. The
the customer, called kanban, trigger replenishgoal is to create a leveled stream of orders and a level
ment of the store. This simple concept of pull
work load. When the work load is leveled, there are
through replenishing stores can be applied all
opportunities to standardize processes. And leveling
the way back to raw material suppliers.
the work load is also necessary to know how much
May
Academy of Management Perspectives
inventory to hold in the supermarkets. If there can

be a run on the store for a particular product, the
system will not be able to keep up. Stable, standardized processes are necessary, or just-in-time production will mean no production. Without inventory to
compensate for instability, the system will constantly
shut down. And this will be even worse if someone
(Liker 2004). But is there more to it than this? As

we look at different components of Toyota's prod-
uct-process development system, we see similar

principles to TPS emerging but applied in a somewhat different way.
Toyota's Management
is pulling the cord and stopping the line every time

there is a problem.
People Engaged in Kaizen
Kaizen has practically become a universal word.

But is rarely practiced in most organizations as
true continuous improvement that spreads through-
out the organization. Kaizen is not optional in a

lean system. Lowering inventory means problems
Principles in Lean PPD

Based on over 15 years of research at the University of Michigan, more than 20 years of
product development experience, and privileged access to Toyota and the patient guidance of
our Toyota Sensei, we developed a model of a Lean
Product-Process Development System. The research base began with studies by Liker, Ward,
truly shut down the operation, starving down- and their students that led to the creation of the
stream processes for parts. Jidoka means machines set-based concurrent engineering model (Ward et
and people are shutting down the system when al. 1995; Sobek et al. 1999). Durward Sobek took
there is a problem. This surfaces problems and is this research a step forward in his dissertation
great if people are skilled and motivated enough to through a broad comparison of Toyota's product
solve the problems very quickly. Otherwise the development system to Chrysler's then emerging
result is simply an erosion of production efficiency platform organization of product development
(Sobek 1997; Sobek et al. 1998).
and competitiveness.
Building on this stream of research, Jim MorIt should be clear that this really is a system.
Toyota uses the analogy of trying to navigate gan in his dissertation drew on his decades of
through waters while lowering the water level to direct product development experience and conreveal the rocks. The water level is like inventory. ducted a two-and-a-half-year, in-depth study of
The rocks are problems. When you lower the inven- Toyota's automotive body development, as comtory problems are exposed and unless they are solved pared to one of the American "Big 3" automakers
the boat will crash on the rocks. Jidoka also reveals (Morgan 2002). The scope of Morgan's study inrocks throughout the day. Surfacing problems is only cluded body engineering, manufacturing engineervaluable if people working on the process have the ing, prototype development, die manufacture, and
tools and are motivated to first contain the problems die and stamping approval. Data and information
and then solve them at the root cause. It is an
were gathered through interviews with Toyota
and supplier representatives and site visits. Over

1,000 hours of interviews were held with 40 peoMany companies are trying to take TPS prinple at 12 different sites in the U.S. and Japan.
ciples beyond the shop floor to service operations
Company
representatives from executive manageand even to professional operations. But there is
confusion about how to imitate TPS in the service
ment, body engineering, manufacturing or proenvironment. Should kanban be circulated to evduction engineering, tool manufacture, as well as
erybody so they can order the next small batch of several Chief Engineers participated in the interendless journey of improvement.
services? Should an andon be hung over each
person's desk to call for help? Should we set people
views.
This in-depth study of Toyota's approach to
up in cells passing paper or doing a piece of product-process development led to the identificomputer work one step at a time? In varying cation of a set of 13 management principles that
degrees and ways, all of these things have been can be considered a foundation for lean product
tried with some success in service operations development more generally. We organized these
2006 2006
Liker
and
Liker
and Morgan
Morgan
99
process
into
a
framewo
Vice
Pre
technology,
wh
does
not
dustries
and
pr
us
do
tant
lesson
to wh
no
What
such
as
makes
re
it
a
good
jo
fit
togeth
piece problems
of
the
s
pieces
a
municat
Vice-Chairman
meeting
The
key
to
the
Toy
your
pr
stand
out
is
not
any
Toyota
d
what
is
importan
technology.
together
in
into
a
syst
We describe each of these elements of the
very
consisten
system in greater detail below. Next, we give ex-
Process.
When
amples of how they
mutually support each other as
ment,
we
often
a system. Finally, we discuss
some of the chal-
cesses.
In
lenges
of learningmanuf
from Toyota.
do
a
job
and
tim
The
Right
Process
Will
Yield
the
Right
Results
out
seconds
of
w
with
product
We often think of process improvement as a tech- d
product
nical issue. Get thedevel
right technical methodology
broader,
more
(these days, often analogous to business processes
than
most
short
for software use), justify its
cost, implement it, and
doing
Toyota
it runs. If it does not run as planned, it ish
a
process,
refine
management
problem. Identify the offending i
reduce manager
both
lead
who failed to properly execute
the busiprogram.
The
pr
ness process, get rid
of him or her, find a "good
objectives
for
ea
manager," and hopefully the problem is solved.
ally
always
achie
Toyota has a very different
perspective. At
People.
Driving
Toyota there
is a philosophy of having a good
standardization
process. It is as much a philosophical issue as a
technical issue. There
are a set of beliefs about
team
to
achiev
only
do
the
wo
what makes up
a good process. A good process
is
discipline
but
als
not defined by technology
but by good process
to
improve
it.
principles, and then people create
and improve T
ing
basis.
It
is
t
the process according to
these principles.
do
this
req
A work
summary of the process principles
of lean
nical
competenc
product development is provided in Table 1.
ogy
they
are
We will discuss each
principle in turn. eng
also
learn
Establish Customer-Defined Value
thro
"Toyota
Way"
of
them,
developin
The customer is always the starting point for any
ing,
and
process. This is impro
not an unusual statement. Any
edge
is
the
base
company
exposed to Total Quality
Management,
the
higher
Baldridge concepts, or any oflevel
the myriad articles
is
part onof
cu
quality in the lastthe
20 years has some variation
Tools. of Technolo
this approach in their mission statements. The
to
enable
difference is talk versus
the
action. Toyota has made
p
10

10 Academy of Manaqement~~~~~I
PrpcIve a
May
Front-Load
the Product Development
Process company
this value a part of the
culture
of the
Culture goes below the
artifacts
This surface
is another bit of
of common
wisdom inand
pro
slogans to the values,
beliefs,
and
taken-for
development and part of the quality movem
granted assumptions of
employees.
philosophy
as well. Do it right the first tim
"Customer first" creates alignment out of conavoid very costly downstream design changes
flict. As an example, a common problem in autointroduce dangerous last-minute variation and
motive development is what seems to be inherent
lay product introductions. At Toyota, prevent
conflict between those who style the car, essen
this means deep exploration of a wide rang
tially artists, and those who engineer the car.
potential problems and alternative solutions ea
Stylists want looks. Engineers want functionality
in the process.
and manufacturability. The two do not always
Toyota's definition of early is quite early
meet. Ask body engineers at Toyota about thi
many automotive companies serious enginee
conflict and they are genuinely confused, espe
in body development does not begin until a
cially if they did not already work for another aut
clay freeze. This is the point at which the sty
company. They see no conflict. "We are bot

who create the vehicle appearance throu
serving the customer, so why would there be a

sketches and clay models are finished and
conflict?"
have signed off on a single body st

Second, adding valueexecutives
at Toyota
is defined by
is then digitized
and the surface
transfe
customer value. TheThis
famous
passion
to is
elimi
to CAD andProduction
engineering departments.
This o
nate waste in the Toyota
System
represents
the starting point for Waste
body engineei
also applies in product
development.
which
has
to
develop
the
detailed
part
desi
what costs time and money and resources
but
used to
tool up
the vehicle. A good
deal of b
does not add value from
the
customer's
perspec
structural
and
manufacturing
engineering
has
tive. Eliminating waste to focus on adding valu
be done
develop safe, manufacturable
bo
to customers provides
a to
common
reference
Yet for to
Toyota
most of the impor
point for engineers structures.
working
improve
th
simultaneous
engineering
of
the
product
and
process.
process begins much earlier than c
Finally, Toyota has created specific toolsufacturing
and
model freeze, during what they refer to as Ke

methods such as the Obeya team system (described
or study period. During this time cross-funct
later) to align, execute, track, and deliver custom-
teams generate hundreds of Kentouzu, or s

er-driven objectives throughout the program
team.
drawings, as they investigate alternatives for o
Table 1
Process Principles of Lean Product Development
Principle Description
1. Establish customer-defined value to separate value added from waste. Lea

defined by first defining customer value.
2. Front load the product development process to thoroughly explore Def
alternative Solutions while there is Maximum Design Space. will hav
explore alternatives and solve anticipated p
exponential benefits.
3. Create a leveled Product Development Process Flow. Leveling the

appropriately planned. This allows product
work load. Predictable work load swings can
labor pools.
4. Utilize Rigorous Standardization to Reduce Variation, and Create Flexibility Standardization is the basis for continuous improvement. Standardization of the
and Predictable Outcomes. product and process is a foundation for all the other process principles.
2006 2006
Uker
and
Liker and Morgan
Morgan
11
11
mal
We do not mean to imply Toyota has directly

solutions
(So
applied the concepts from
the Toyota Production able
way
they
are
System
to product development. But they have
before
individual
developed athe
specific set of powerful tools
and
most
of
late
to create leveled flow in their product
loading methods
process
a
development
process based on
principles quite
ity
that
is
inhere
similar to
those that underpin the Toyota way in
ing
for
speed
and
manufacturing.product
Consequently, much of what they
phase
of
do is intuitive within
the product development
The
late
Allen
W
process
itself.
design
theory
ca
For example, through (Ward

experience running prodneering"
uct development programs from concept to fullThe

concept
see
scale production focusing on learning, continuous
in
the
product
d
ing
a
broader
improvement, and process standardization,set
ing
certain
Toyota can predict with great accuracy deci
the engisecond
neering
Toyota
labor hour requirements at various points
pa
Time
where
hol
in the process and reliably predict fluctuations
in
PD system resource demands. It looksyou
roughly like
more
likely
w
when
you
a bell-shaped curve with
need
few people early on
t
reaching aitself
maximum around the middle when
tory
by
or
sions
by
designs are finalized
itself
and then winds down into
d
based
search
production launch. They have stabilized the
proc
proexecuted.
cess to the point that this plan fits reality quite
well. But they do not want to have all the people
Create
a
Leveled
needed at the peak of programs Product
on the program for
Once
you
the entire time, even when they
defin
are not needed.
majority
eng
So they assign people of
to programs in a leveled
(i.e.,
achieved
way, peaking at some level and drawing on flexi- bas
development
ble labor pools for people needed above thisrequ
level
the
product
m
at the peak of the program. The flexible laborto
pool
prove
the
pro
includes a central poolPD
of technicians and engiAlthough
neers from outside suppliers.
you
This approach allows
m
them to level the schedule of engineers and fully
design
challenges
utilize the time of the engineers.
their
sequences
grams.
In
this
se
system Utilize Rigorous
is
a
Standardization to
Reduce Variationknow
and to Create
you
can
continu
Flexibility and Predictable
Outcomes
forms
of
tools
u
The challenge in product development is to reprocesses,
such
a
duce variation while preserving the creativity that
ing
theory,
to
e
is necessary to the creative process. In fact, Toyota
cross-functiona
creates higher-level system flexibility by standard-
powerful
persp
izing lower level tasks. There are three broad
shop
to
level
wo
categories of standardization at Toyota.
agement
event
c
demand
rate
1. Design Standardization
is achieved through and
processes
common architecture,
across
modularity, reusability,
portingand shared
technolo
components.
work.
2. Process Standardization is accomplished by de-
12 12
Academy
of
Management
Perspectives
May
May
fident
andbuildin
really
signing products
and
itself.
manufacturing
facilities based
manufacturing processes.
3.
Standardized
Skill
Sets
fo
gives flexibility
People Systemsin staffing an
ning and minimizes task variat
People provide the intelligence and energy to any
Standardization
provides
the
lean system. People
Systems includes the recruitToyota to develop
elegant
solutio
ment and selection of engineers, training and prohighly cyclic resource
i
fessional development, leadership demands
styles, organizasystems. It also
allows
them
to
c
tional structure, institutional learning and
and
predictable
outcomes
memory, and
the elusive thing called organiza-
timing
in
an
unpredictable
tional culture. Culture refers to shared language,
with
envir
a young American
engineer
hi
symbols, beliefs, and values.
A measure of the
Technical Center in Michigan
strength of the culture is the degree to which these

first design they g
things are truly shared across members of the
for that body part. The part pr
organization, and Toyota has a very strong culture.
itself. All I had to do was go thr
While many companies are attempting to reduce
One might expect that this en
reliance on people to cut costs through methods like
strung by the checklist and rigidi
worked
on
my
automation or shipping out engineering work to
Yet, the engineer felt highly ch

low-wage engineering service firms, Toyota's system
overwhelmed by his first Toyo
is built around people who are thoroughly immersed
He had first worked for an Ame
in the Toyota Way. It must be part of their DNA,
and said he "felt sorry for his frie
only
get
take
there
to
my
are
according on
to Toyota. This
reduces the
ability to
work
one
piece
of t
instantly
move
work
from
one
country
to
another
in
part from start to lau
so
the virtual world,

unless Toyota thought
has made the inmany
well
ou
vestment
in developing people and deep relationstep of Toyota's
product
developm
ships in those
other countries.to
The principles
of
has something
new
learn.
people systems
are all about gone
developing people whothrou
program he had
just
challenge, think, and continuouslyIt
improvewould
the
his head was swimming.
t
through the process
product and process (see Table
multiple
2).
tim
Table 2
People Principles of Lean Product Development
5. Develop a "Chief Engineer System" to Integrate Development from start
finish. responsibility for the entire product development process. The chief
engineer is the overarching source of product and process integration.
6. Organize to balance Functional Expertise and Cross-functional Integration. Deep functional expertise combined with superordinate goals and the chie
engineer system provides the balance sought by matrix organization.
7. Develop Towering Technical Competence in all Engineers. Engineers must have deep specialized knowledge of the product and
process that comes from direct experience at the gemba.
8. Fully Integrate Suppliers into the Product Development System. Suppliers of components must be seamlessly integrated into the
development process with compatible capabilities and culture.
9. Build in Learning and Continuous Improvement. Organizational learning is a necessary condition for continuous
improvement and builds on all of the other principles.
10. Build a Culture to Support Excellence and Relentless Improvement. Excellence and kaizen in the final analysis reflect the organizational
culture.
2006 2006
Liker
Develop
and
Liker and Morgan
Morgan
Chief
Organize to Balance
Engineer
Functional Expertise and Cross-Functional
13
13
System
Finish
Integration
In many companies, different functional departments are responsible for different pieces of PD (or
other service processes) but nobody is responsible.
One of the more difficult tasks in developing a

high-performance PD system is striking a balance
between the essential need for functional excel-
Try to identify exactly what the status of the
lence within specific disciplines, such as Body
project is or where decisions are made and you get
Engineering, Electrical Engineering, or Manufacturing Engineering, while achieving the seamless

integration of those experts across departments
required for the success of any individual program.
lost in the morass of endless departments. At

Toyota the answer is clear. The chief engineer is
responsible and can tell you the exact status of the
project. Any difficult decisions will find their way
to the chief engineer. The chief engineer is not
just a project manager, but a leader and technical
systems integrator. While many companies have
someone with the title of chief engineer or program manager they often play the role of project
manager, managing people and timing but not
serving as a chief technical architect like at

Toyota. This unique role is the glue that holds the
whole PD system together at Toyota.
The chief engineer is not a manager in the

traditional sense. The chief engineer is an engineer in the ideal sense. The chief engineer is the
chief architect and systems integrator. Ask engineers working on a program how they know what
customers want and they say we lear that from
the chief engineer. Ask them how they make

tough technical decisions about tradeoffs in objec-
tives and they say we ask the chief engineer.

Eventually all roads seem to point back to this one
person. Ask the chief engineer how he (they are

all men so far) knows everything and can make so
many tough decisions and he will say something
like: "That is what keeps me awake at night."
Chief engineers are only human. But they are
selected and developed over decades to be the best
and brightest engineers and system integrators.
They have a remarkable combination of technical
depth, systems awareness, market savvy, and leadership skills. At the end of the day it truly is "the
Chief Engineer's car." Not every service organiza-
tion needs a chief engineer, but whatever the

product or service, who is responsible for taking it
from start to finish with the deep expertise to see
it is all done effectively with a high degree of

expertise?
While Toyota is fundamentally a functionallyorganized company with emphasis on obtaining

strong functional skills and skill-based hierarchy,
it has augmented this approach with the unofficial
power of the Chief Engineer, module development teams, and an Obeya system ("big room")
that enhances cross-functional integration and
provides a PD program focus.
Toyota has never been willing to abandon the
basic functional organization. Engineers report to
functional managers in their technical area (e.g.,
powertrain, body structures, chassis). These functional managers at Toyota are selected and grown
to be teachers and mentors with deep technical

knowledge. The result is deep technical expertise
in every function-they know what they are doing down to a very detailed level.
Like many other companies, Toyota has found
the matrix organization structure is the best balance of functional expertise and product focus. On
the product side of the matrix are the chief engineers. None of the actual engineers designing cars
report to the Chief Engineer. Rather they report
formally up the functional hierarchy. But everybody understands they are there to serve the customer and the Chief Engineer represents the customer. So in a sense everybody works for the Chief
Engineer.
Toyota is continuously improving the engineering organization. They have found a number
of additional innovations to help build strong

horizontal relationships while maintaining strong
functional expertise. Module development teams
are cross-functional teams that bring together
product engineers and production engineers

around a certain part of the vehicle.
"Obeya" is an innovation to improve commu-
14 14
Academy
of
Management
Perspectives
May
May
nication
and
Engineer
and
decision-making
must
be a fundamental part of your lean pro
the
functional
development
system. Companies shouldm
ma
Engineer
meets
in
thein big
r
and nurture
their suppliers
much the same
engineering
leader
from
each
they manage and
nurture internal
manufact
tion
at
least and
every
other
day
engineering resources.
At Toyota,
supp
meetings
in are
the
Obeya,
whe
valued for their technical expertise in add
integration
across
parts
ofPre-sourcing
the
to their parts-making
capability.
get them on board from
the sta
ment
is
usedrangements
to
display
on
w
schedules,
problems
that they are involved and
from the earliest
cou
stag
other
information
which
displa
concept development.
Using methods
like hav
project
acrossguest
all
engineers
the
fromfunctiona
suppliers work full-tim
Toyota's engineering offices cement the inti
Develop
Towering
Technical
Competence
in
A
relationship between
Toyota and its suppliers.
Technical
excellence
also important to note
in
that while
engin
Toyota
resources
is
fundamental
to
lea
fully integrate suppliers into the
process
ment.
The
modern
maintain valuableautomobil
commodity knowledge in
tem
of
highly
nally and
technical,
never relinquish vehicle inte
system re
nents
that
technology,
sibility.
demands
aero
and
knowl
fluid
dyn
Build in Learning and Continuous Improvement

electronics,
just
to
name
That
is
why
it
The ability
is forso
a companysurprising
to learn and improve
and
ers
pay
little may
more
than
lip
well be the most sustainable
competitive advantage it superstars,
has in its arsenal. At Toyota, learning
oping
technical
neers
to
ser
pre
and continuous improvementrather

are a basic part of
broaden
th
their day-to-day
operations and their
faster lead
experience.
In
fact,
much
of
times create shorter learning cycles
and formmany
the
couraged
or
available
in
basis for
their continued
dominance of theiras
tions
is
often
so
general
to
value at all.
industry (Morgan 2002). Toyota is a leader in
At Toyota technical excellence is revered, gathering, diffusing, and applying performancewhich is partly why Toyota engineers spend a high enhancing information and takes on major
percentage of their time on core engineering. challenges that primarily benefit learning.
Toyota begins with a rigorous hiring process, and Their short development lead times combined
then designs a career path that emphasizes deep with their unparalleled ability to learn as an
technical skill acquisition within a specific disci- organization create fast, effective learning cypline, focusing on mentoring of critical tactical cles which accelerate their continuous improveskills that are required for engineering excellence. ment engine. Specific product development
The principle of genchi genbutsu (actual part, ac- learning mechanisms such as the previously distual place) at Toyota pushes engineers to get their cussed mentoring system and learning events
hands dirty and go directly to see for themselves called Hansei, or reflection, are built into the
how the work is getting done and what the prob- basic development process to create opportunilems are. In fact in their first year engineers spend ties to learn from every program.
months working on the production line building
cars.
Build a Culture to Support Excellence and Relentless Improvement
The DNA of Toyota is about very strongly held

and values that are shared across managers
andof
working-level
engineers. These core beliefs
Suppliers provide more than 50 percent
vehicle
compel
the organization to work harmoniously tocontent for most automakers and over
75 percent
wardsuppliers
common goals. For example, satisfying customin the case of Toyota. It is clear that
Fully Integrate Suppliers into the Product Development System

beliefs
15
2006206Lie-ndMrgn1
Liker and Morgan
ers
is
represents
core
value
of a
a
fact,
they
se
provides
the
basis
for
ke
not
the
sions
tive
case
at
seem
ment.
advantag
some
aut
to
based mo
on
isbe
much
effort
to
ens
one
engineer
As
hances
alrea
Toyota
from
another
aut
cesses
and
h
old
company
the
focus
w
That
is
why
Toyota
we
focus
on
buil
and
effort Bu
cu
culture
is
the
system.
digital
simu
is
a
fundamen
manner
consis
Way
before
i
the
process
they
espouse.
All
of
the
then
add
tec
cause
the
culture
itself
m
specific
opp
part
of
how
Toyota
gets
excellence
behave
in
ment
Tools
and
system.
Technology
Align
your
Organiz
The
third
subsystem
inv
nologies
employed
to
de
While
cultur
uct.
This
subsystem
holds
the
org
systems,
machine
tech
tools
are
used
facturing
and
testing
engineers
fo
"soft"
toolsOne
that
suppor
well-kn
involved
in
the
develop
hoshin
kanr
be
for
problem
solving,
This
method
best
practices
(see
Tab
goals
into
m
level
Adapt
of
the
to
Fit
Your
Peop
in
Toyota
t
Technology
Companies
specific
syste
err
when
the
cost,
safety,
alone
will
provide
the
of
solving
th
achieve
high
levels
of
when
things
development,
especiall
usesthis
very
sim
ways
in
which
tech
ing
informat
processes
or
people.
Add
paper.
This
A
damentally
flawed
pro
size)
has
four
little
to
help
per
solving,
statu
retard
it,
especially
fo
However,
th
recognizes
that
technolo
will
do
Table
Tools
and
Technology
Pr
11. Adapt Technology to Fit your People and Process. Technolo

and process.
12. Align your Organization through Simple, Visual Aligned goals must be cascaded down and joint problem solving is enabled
Communication. by simple, visual communication.
13. Use Powerful Tools for Standardization and Organizational Powerful tools can be simple. Their power comes from enabling
Learning. standardization which is necessary for organizational learning.
16
Academy
of Management
Perspectives
May
Perspectives
May~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
document communicates only the most pertinent

information in a simple visual format. This too is
used to develop consensus among a group of people.
Use Powerful Tools for Standardization and Organizational Learning
How can the company learn from program to

program? A well-known principle of kaizen is that
you cannot have continuous improvement without standardization. Toyota has evolved very powerful tools to standardize learning from program to
program at the macro-level, mapping how the

design process itself transfers to individual lessons
at the detailed technical component level through
engineering check lists.
The most important thing about these tools is
that they are simple as well as owned and maintained by the people doing the work. A bumper
engineer must own the standards related to

bumpers and work to keep them up to date and
communicated. Turning this over to a corporate
"standards" department will make these documents bureaucratic and lifeless.
Putting It All Together to Create a Coherent System
highly efficient process is of no use if the people
in the organization do not possess the skills

required to carry out the required tasks, or if
they are not organized such that the right peo-
ple are available at the right time. Consequently, we must next consider those skills,
practices, and organizational characteristics
that will be required to execute the process.
Finally, tools and technologies that do not fit
the process or support the activities of the peo-
ple will not achieve their potential and may

even hinder performance. Tools and technologies must fit the system by supporting the pro-
cess and enabling the people.

Globalizing the Toyota Way
is task is recognized by Toyota as their single
biggest challenge. Toyota old-timers in Toyota

City often joke that they are "country bump-
kins." Toyota City was farmland before Toyota

built a global powerhouse, and Toyota leaders
have the spirit of farmers-e.g., tough, strong
work ethic, solve each problem as it comes, do the
best you can with what you have. But farmers are
also locally oriented rather than cosmopolitan,
Lean is a system. What does that mean? It means

and one can make a case that Toyota is still a local
the parts interact, overlap, are interdependent,
company that has spread out globally.
and work together as a coherent whole. This is
Toyota's way includes a deep set of values and
perhaps the key insight from our research.
principles that are taught to all new members over
Changes to one subsystem will always have implimany years through intense mentorship. Toyota is
cations for the others. Think about a simple menot willing to compromise the Toyota Way as it
chanical system like an engine. It is quite possible
globalizes, seeing its "DNA" as its main source of
to have the best piston, the best cylinders, and the
competitive strength. This of course raises the
best fuel injectors. But if they do not fit togethchallenge of how to spread this unique blend of
er-for example, the sizes are all different-you
Toyota and Japanese culture to different cultures
have a bunch of great engine parts that together
with engineers who have not grown up in this

do nothing. Product development organizations
culture. There are many ways that Toyota has
are many times more complex because of the
been doing this quite successfully:
complexity of human systems, making the need
1. Coordinator System. How do you transfer the

for a systemic perspective even more critical.
DNA of your company? Toyota knows only
Integrating people, process, and tools and techone
way-through people. So they realized
nology into a coherent system requires that that
subsystems are purposefully designed, aligned,

and mutually supportive. After understanding
the value from the customer's perspective, the
focus shifts to the task to be accomplished and
the development of a waste free workflow or
process by which to accomplish it. However, a
they needed to make a major investment in

people. They have deployed around the world
thousands of "coordinators" whose primary job
is to transfer the DNA. Every manager and

above had a full-time Japanese coordinator
when Toyota first opened manufacturing
2006 2006
Uker
and
Uker and Morgan
Morgan
17
11
the way Toyota has

encountered many
plantsAlong in
the
U
problems in transferring
the culture. In an ideal
Technical
Cente
sense the Toyota
is about taking problems as
tor
was
a Way daily
c
in
and
and
opportunities to reflect
and improve. Below are
a
day
out
for
few examples.
act
in
the
Transferring Hansei.
Hansei is roughly transare
fewer
Japane
lated
as
reflection,
but
it means much more in
they
are
develop
2. Careful Selection. Even with the coordinator
Japan. Young children know that when they do
system you need the right raw materials.something wrong they will be asked to do the
Toyota carefully selects its people in Japan and hansei. They are being asked to reflect, come back,
elsewhere, identifying people who will fit the and express how deeply sorry they are about their
DNA of the company. They look for smart, failing, and vow to improve and never do it again.
dedicated, hard working, committed people The adult version in companies is to take responwho are excited about cars, like to work in sibility for problems, feel really sorry, and explain
teams, have a curiosity about solving problems, what you will do to prevent that mistake from
and are open to learning. Usually they hire happening again via a written plan. Toyota leadpeople with good grades in school but the best ers view hansei as what drives kaizen-the deep
students in school are often not well-suited for desire for continual improvement with an eye
toward ultimate perfection. So when a Japanese
the Toyota Way in other respects. And they do

manager finds a weakness in a project the engineer
not want fast trackers whose focus is climbing
is expected to take it constructively as an opportheir way to the top.
tunity for improvement.
3. Trips to Japan. Every visit to the mother ship
American Toyota employees did not take it
in Toyota City, Japan, is an opportunity for
indoctrination. It is such a different environ-
that way. They started using phrases like "the
obligatory negative" that the Japanese managers

ment that most visitors cannot help but expemust put into every assessment of every project.
rience cultural shock, which opens them up to
The Americans wanted praise for all the good
learning. The energy, efficiency, and problemthings they did, not criticism for the few weaksolving exhibited across the Toyota organizanesses. The Japanese could not see how such
tion in Japan is striking, and Toyota overseas
praise would be beneficial for continuous imemployees are generally quite impressed as well
provement.
as humbled by the experience. While in Japan
There were painful experiences in America bethey are given challenging tasks and learn acause of these different perspectives toward hansei.
different level of problem-solving than theyAt one point, the Toyota Technical Center
have experienced.
stopped using the phrase entirely. Then about ten
4. Chief engineer system. The Chief Engineer years later, hansei made a comeback, as there was
does a lot of teaching and coaching in themore trust between the Americans and Japanese
course of leading product development managers, and the Japanese had learned how to
projects. The Chief Engineer is a charismaticbalance positive and negative feedback. This
figure, and American engineers will excit- learning has been important in Japan as well beedly recount stories of their encounters with cause the younger generation of Japanese engi-
Chief Engineers. It is well known that muchneers are more Westernized and expect praise
of our learning occurs during significantwhile being less willing to accept harsh criticism.
emotional events and working with the chief
Work-Life Balance. It is well known in Japan

engineer under the pressure of Toyota's that the company comes before the individual's
highly compressed product development pro-personal or family life. Talk to senior or retired
grams are emotionally charged learning op- Toyota engineers about their work hours when
portunities.
they were young engineers and the story is the
18 18
Academy
of
Management
Perspectives
May
May
ment. In America the bonus includes

a compo-to
worked
10
14
nent
based
on
individual
performance.
or
7
days
a
week.
Men
we
Each of these examples is really
part of a series
these
hours
while
their
wi
of
learning
experiments
for
Toyota.
As
a
learning
This
was
especially
true
du
organization,
Toyota
tries
things,
evaluates,
reproduct
development
when
flects, and selects a further
course of action.
Demwas
doing
what
was
necess
same.
They
ing taught them to Plan, Do, Check, and Act prog

Product
development
They practice
this problem-solving cyconsuming (PDCA).
and
engineers
cle at a the
remarkably high level
compared to other
hours
during
pressure
p
companies.
There
is
no
single
solution;
this tenet has
Even
though
Toyota
is true for transferring
the Toyota Way to other
waste
to
make
resource
dem
countries.
No
one
in
Toyota
would
say
they
have
and
leveled
the
flow
of
wo
this
problem
solved.
They
would
say
they
are
level
of
peak
human
resourc
working on it and have learned a great deal.
they
can
begin
to
lessen
som
demands
take,
on
Toyota
individual
Learning from the Toyota Way
engineers
M any companies throughout the world are
hard.
However, in America and other Western cultures there is a higher value placed on personal
and family life so Toyota managers were hammered over and over again with the issue of "work-
life balance." This is another thing they have

gradually been working on first overseas and then
to a degree back in Japan. For example, at the

Toyota Technical Center in Michigan they instituted flex time and younger engineers can set
work hours within some constraints to give them
flexibility to be at key family events (e.g., children's soccer games). The surprising thing about
this is that they actually had to agree there should
be a start and a stop time, whereas in Japan it

seemed that however early an engineer started the
ending time was late in the evening or even approaching midnight.

Individual Versus Group Rewards. In Japan,
dedication to the company and the team is expected by Toyota. In fact, individuals are usually
very embarrassed if they are singled out for praise.
Their response will be: "It was the team that

accomplished this, not me personally." Americans
expect to be singled out for praise when they feel
they have accomplished something significant. So
Toyota has had to institute certain individualbased rewards in America. For example, the twice
per year bonus in Japan is strictly based on how
the company performs and not related to performance of any individual or any specific depart-
seeking to learn from Toyota's system. Typically they limit their exploration to a few
superficial "lean" tools. Companies that have seen
success with lean tools in manufacturing plants
want to apply them to their own product development processes. What they look for are quick
fixes to reduce lead time and costs and to increase
quality. However, they almost never create a true
learning culture in the factory, while remaining
convinced they had "gone lean" on the shop floor.
Then, despite never really getting the conversion
in the factory, they move on to the product de-
velopment process to attempt to create "lean"

offices.
What can other companies learn from the

Toyota Way? The journey is far more complex
than applying a few tools or holding some classes.
It truly is a cultural transformation. It truly is a
PDCA learning process. You need to start on the
learning journey and then keep going and never
stop. You need to practice deep reflection and

learn. Toyota is continually learning. They are far
from perfect-and would become very nervous if
anyone thought they were. What we can take

away from Toyota is the importance of becoming
a humble, learning organization.
Toyota has developed a true learning organization focused on adding value to its associates, the
community, and society and as such is a model

other companies can look to for inspiration, ideas,
and methodologies. As a complex living system,
eng
in
2006 2006Liker
and
Liker and Morgan
Morgan
19
19
moved (a method to mapleader

the process and show
Toyota's
the value added and non-value
added steps).
the
parts
3.
has
been
self
Implement the changes. a
make
4. Celebrate success.
executives
under
all
system
of
m
This is just a start. Once an organization has gone
Toyota
wa
through this exercise a number of times one can
Nakagawa
put
it
ask a broader set of questions about what has been
just
like
any
ot
accomplished:
The
case
of
pr
new
insights
in
1. Are the changes leading to new standardized
ciples
can
ap
processes that are the be
basis for further waste
even
in
techni
reduction?
service
operati
2. Are people
throughout the organization enbusily
engaged
gaged in continuous improvement and aligned
includearound
hospital
a common set of objectives?
ginia
Mason
Hos
3. Are all the soft tools and harder technologies
tem
services
being used to support people improvingpr
the
the
nies
such
as
W
delivery of products and services
to customers?
financial
institu
lean.
If we take a hard, honest look at most organizations
Whentryingorganiz
to "implement lean"-or six sigma for that
matter-the answer to
each of these questions is a
what
are
they
r
want?
They
resounding no! They have not gotten much
star
further
tem
and
look
at
than applying a few
tools to a few processes.
ing
high
quality
One of the concerns
companies will have about
of
TPS applying
and
the "lean" methodologytry
to service opera-
whatever
their
tions is its impact on professional
employees. Profes-
focus of TPS is on reduction of lead time which
sionals are not like workers on the shop floor. They

then has benefits in cost, quality, and delivery, so
are educated, well paid, and expect to have autonthey look to reduce lead time through waste elimomy and be creative in their work. A common image
ination. Mostly the tools apply in an obvious way
of a lean shop floor can be quite negative. Imagine
these professionals in their natural work environto repetitive operations. For example, hospitals
can look at the process of testing blood, or how
ment being pressured to follow standard procedures
tools and supplies are stocked and brought to the
for everything they do and constantly pull minutes
point of use, or how the operating room of
is non-value added activity out of the process leadchanged over for new patients. These are all analing to more intense and tightly controlled work for
ogous operations to what one would see on the
all hours of the day and night. Once the work has
shop floor.
become standardized the next step is to monitor it
When we look through the lens of how Toyota
carefully providing rewards and punishments based
has applied its principles to product development,
on scores on key metrics. It is no wonder we often
we notice that by and large service operations are
see resistance from professionals when the concept
of lean is discussed.
focusing narrowly on a few lean tools in the "process" piece of the integrated system of process,
If you believe the analysis of the Toyota Way in
people, and technology. The typical approach:
this article and the work of scholars like Paul Adler,
1. Identify a repetitive process to improve.

2. Apply value stream mapping to identify waste
you will agree that Toyota has created a different

type of standardization and a different type of bureaucracy. Paul Adler (1999) talks about the negative view of a machine-like, controlling bureaucracy
and then a future state map with waste re-
20
Academy
of Management
Perspectives
May
Perspectives
May~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
as coercive, and what Toyota has done is create a

different kind of "enabling bureaucracy." In Toyota's
version, standardization is part of continuous improvement and a tool in the hands of the people
doing the work. It is in fact liberating rather than
confining. Indeed, The Toyota Way also provides a
very positive view of how Toyota invests in and
it could not possibly look like Toyota. So the only

alternative is to try to understand the message of
what it means to become a lean learning organization and the hard work required to start to build such
a culture piece by piece over many years. Maybe the

result will be better than Toyota. The spirit of chal-
develops its people from the offices to the labs to the
lenge and always trying to get better is the central

message of the Toyota Way.
shop floor to take on challenges and accomplish

remarkable feats. It is enriching and challenging
References
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or a colorful and rich learning organization?
As usual the answer is probably somewhere in
between and also depends on one's perspective.

Certainly Toyota managers and engineers work
very hard. There are pressures to perform. Failure
is never an option and creating constant wins

means working long and late hours and stressing
people. Many overseas managers and engineers

working for Toyota have admitted that the pressures of being so perfect and working whenever it
is needed are too much for them to sustain over an
entire career. On the other hand, other managers
describe working for Toyota as "coming home"

where they can finally be part of something they
can believe in. They would not want to work for
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Sobek, D.K. II, Liker, J., & Ward A. 1998. Another look at
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Ultimately, a company must envision what it

wants to become. It does not need to look exactly
Womack, J.P., Jones, D.T., & Roos, D. 1990. The machine

that changed the world. New York, NY: MacMillan
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The Toyota Way in Services: The Case of Lean Product Development

Author(s): Jeffrey K. Liker and James M. Morgan

want while eliminating waste in the value stream

Since the 1980s, companies throughout the

mance is the quality of new Toyota products.

manufacturing. Now it is almost a given that a

quality in the first 90 days of ownership is an

manufacturing company needs some sort of "lean"

2001, including a phenomenal ranking of 10 first

world have been looking to Toyota as a model for

is not aware of lean principles and considering

mon type of automotive product development)

months; more basic categories of vehicles, such as

Toyota's Product Development System has en-

Review of TPS Principles

sented as a house. The TPS house has become a

cultural icon in the manufacturing world. The

The Toyota Production System House

Just-In-Time Peoplc & Teamwork Jidoka

Leveled Production (heijunka)

extended to manual processes in which operators

problem. When a machine or person stops for

through processes very fast, getting the right

connect separate processes together in some

other way. For example, a stamping press might

build in batches between changes of dies and

ing a store up to certain maximum levels overall

inventory and then waiting to replenish only

what the customer takes away. Instructions from

Academy of Management Perspectives

inventory to hold in the supermarkets. If there can

(Liker 2004). But is there more to it than this? As

uct-process development system, we see similar

is pulling the cord and stopping the line every time

People Engaged in Kaizen

Kaizen has practically become a universal word.

out the organization. Kaizen is not optional in a

Principles in Lean PPD

were gathered through interviews with Toyota

and supplier representatives and site visits. Over

services? Should an andon be hung over each

person's desk to call for help? Should we set people

This in-depth study of Toyota's approach to

system in greater detail below. Next, we give ex-

Academy of Management Perspectives

company. They see no conflict. "We are bot

serving the customer, so why would there be a

have signed off on a single body st

model freeze, during what they refer to as Ke

teams generate hundreds of Kentouzu, or s

drawings, as they investigate alternatives for o

Process Principles of Lean Product Development

1. Establish customer-defined value to separate value added from waste. Lea

2. Front load the product development process to thoroughly explore Def

alternative Solutions while there is Maximum Design Space. will hav

explore alternatives and solve anticipated p

3. Create a leveled Product Development Process Flow. Leveling the

work load. Predictable work load swings can

We do not mean to imply Toyota has directly

For example, through (Ward

uct development programs from concept to fullThe

strength of the culture is the degree to which these

automation or shipping out engineering work to

Yet, the engineer felt highly ch