I believe Toyota to be possibly the greatest company in the world. It has 14 principles which are the backbone to its culture and Toyota can embed these principles in all countries it operates within. Its Kentucky plant in the USA exceeded all Toyota expectations with its acceptance of the Toyota way. To understand the Toyota principles one needs to read Jeffrey Liker’s book,
The Toyota Way: 14 Management Principles from the World’s greatest Manufacturer. He has broken them down into four categories as set out in Exhibit 1.
Exhibit 1 Jeffrey Liker’s analysis of Toyota’s 14 principles
I believe that Toyota’s 14 principles should be embedded in all private, government and non profit agencies as best they can. They would make a profound impact on the organisations, benefitting the staff, management, board and customers. The 14 principles are set out in Exhibit 2.
Exhibit 2 Toyota’s 14 principles
Principle 1: Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.
|Process||Principle 2: Create continuous process flow to bring problems to the surface.|
|Principle 3: Use “pull” systems to avoid overproduction.|
|Principle 4: Level out the workload (Heijunka).|
|Principle 5: Build a culture of stopping to fix problems, to get quality right the first time.|
|Principle 6: Standardized tasks are the foundation for continuous improvement and employee empowerment.|
|Principle 7: Use visual control so no problems are hidden.|
|Principle 8: Use only reliable, thoroughly tested technology that serves your people and processes.|
|People and Partners||Principle 9: Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.|
|Principle 10: Develop exceptional people and teams who follow your company’s philosophy.|
|Principle 11: Respect your extended network of partners and suppliers by challenging them and helping them improve.|
|Problem solving||Principle 12: Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu).|
|Principle 13: Make decisions slowly by consensus, thoroughly considering all options and then implement the decisions rapidly.|
|Principle 14: Become a learning organisation through relentless reflection (Hansei) and continuous improvement (Kaizen).|
Outlining some of Toyota’s 14 principles
1.1 Create continuous process flow to bring problems to the surface
This is an important principle for the finance team to master. Here each process is reviewed for its current timeline and then shortened to eliminate waste. The finance team need to master lean for themselves and the organisation. Mastering this will leave a legacy and add to your salary.
One of the best methods to monitor timelines is “Post-It” re-engineering which is covered later on in the paper.
1.2 Level out the workload (Heijunka)
This is a major breakthrough. It points out that if you streamline processes and eliminate bottlenecks you can make smaller production runs viable and indeed desirable. In a tractor company where the major sales are for the midsized tractor the lean manufacturer would manufacture them according to daily demand as Exhibit 2.3 shows. The better matched production to demand reduces the need for finished goods stock holding considerably.
Exhibit 2.3 Matching production to sales
1.3 Build a culture of stopping to fix problems, to get quality right the first time
This is an important principle for the finance team to master. Finance teams invariably go from:
- one month-end to another without improvement
- one annual plan to another without improvement
- one year-end to another without improvement.
Whereas if we adopted this Toyota principle we would evaluate, after process has finished, and ask what can we do better next month, next year.
We would reduce the number of internal transactions, the number of spreadsheets and constantly review each processes’ timeline to further eliminate waste and shortened timelines.
3.4 Use visual control so no problems are hidden
Toyota is famous for its “andon cord” if problems occur. Andon refers to the pull cord” where any worker on the production line can stop production, and ask for help, if they see a fault that cannot be fixed by them or the next workers before it will be covered up by a panel. Immediately lights flash and that part of the production line is halted. The workers below are unaffected as there is a feed in line with about eight minutes of product to work on. Trained engineers rush in and fix the problem. They have up to eight minutes before the whole production line will be halted. The ability of anyone to stop production and the flashing lights to get the roaming engineers to the spot quickly is a major advantage Toyota and other manufacturers have when using this visual control.
Visual control is an important principle for the finance team to master as many reports need a rocket scientist to read them. Whereas if we adopted this Toyota principle we would make:
- all reports so clear that nobody needs to ask questions about them – I call it passing the 14 year old test
- use some sort of “andon cord” like a “red cone” so staff, within the accounting function, can signal that they are having a problem that might delay an accounting process, at month-end / annual planning/ annual accounts
- use of staff notice boards, screens in canteens to report progress
3.5 Respect your extended network of partners and suppliers by challenging them and helping them improve
This is an important principle for the finance team to master as it will involve:
- ensuring all transactions from major long term suppliers are paperless
- maximising the use out of the G/L, planning tool, reporting tool by constantly improving the use of their features
- streamlining certain processes to one contractor e.g. purchasing stationery, travel requirements from one national supplier
3.6 Use only reliable, thoroughly tested technology that serves your people and processes
Toyota are never the first to use a new technology. They let others break-in the new ground. They are, without doubt, the best users of a new technology once they have ascertained that it will serve their staff and their processes.
This has important ramifications for the finance team in the selection of a new G/L, a planning tool, and a new accounts payable system.
3.7 Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu)
Toyota supervisors and managers are always expected to “walkabout” to see for themselves what is happening. They do not rely of written reports or meetings. The Finance team should do more walkabout especially with:
- setting up new “paperless processes” with key suppliers
- reducing waste within operations
- visiting best practice sites, around the world.
I firmly believe if CFOs visited more sites that are using their intended new applications they might think twice. I am referring to some of the large G/L applications that are so complex only rocket scientists can implement them, and the organisation and their bank account are now taken hostage for the foreseeable future.
3.8 Make decisions slowly by consensus, thoroughly considering all options and then implement the decisions rapidly
Toyota is very slow in the planning stage but very fast in the implementation and commissioning as everything, I mean everything, has been discussed and contingency plans agreed, ready for action if required. The Finance team should take heed of this principle especially with the:
- changing of the general ledger
- purchasing a planning tool
- migration from annual planning to quarterly rolling forecasting
3.9 Become a learning organisation through relentless reflection (Hansei) and continuous improvement (kaizen)
All the great paradigm shifters such as Peter Drucker, Jim Collins, Peters and Waterman have preached the need to innovate and not spend too much time trying to second guess whether it will work or not.
All the built to last companies came up with their big ideas through a bit of serendipity. Jim Collins refers to it as very much like Darwin’s survival of the fittest. Try a lot of things and only let the strong ideas survive. In the Motorola example he points out that Motorola see innovation very much like a growing tree, you let it branch out but you are also constantly pruning.
Jim Collins has created a blue print for evolutionary progress based on analysing 3M. These five steps are:
- Give it a try and make it quick.– When in doubt, vary, change, solve the problem, seize the opportunity, experiment, try something new even if you can’t predict precisely how things will turn out. No matter what, don’t sit still.
- Accept that mistakes will be made. Since you can’t tell ahead of time, which variations will prove to be favourable, you have to accept failures as an evolutionary process.
- Take small steps. It’s easier to tolerate failed experiments when they are just that, experiments, not massive corporate failures.
- Give people the room they need. When you give people a lot of room to act you can’t predict precisely what they will do, and this can be beneficial. 3M give their staff 15% of discretionary time to play around with ideas. The “Post It” note was developed this way.
- Mechanisms/build that ticking clock. 3M ideology creates an environment where innovation was cut loose. 3M does not just throw a bunch of smart people in a pot and hope that something will happen. 3M lights a hot fire under the pot and stirs vigorously.