By December 11, 2006 3 Comments Read More →

Ghosn on Toyota

Fortune Article

In an article that reminds us that the uber-leader is merely human:

“He’s not a superman, only a human being, but he gets results,” says Garel Rhys of the Cardiff University Center for Automotive Industry Research in Wales. “He sets goals and holds people accountable.”

Is there a French equivalent of “uber”? Of course he’s human. Sheesh, the business press and the way they pump people up sometimes. Anyway, if the only magic is “setting goals and holding people accountable”, it seems like every company should be having that same magic. Old Sloan mass production management was all about “management by objectives” and still is. It’s the stuff Deming railed against.

Is the problem with everyone else either A) not setting goals or B) not holding people accountable?

Anyway, Ghosn said this about Toyota:

Ghosn also spends much of his time thinking about Toyota. Since he believes he can’t know what Toyota will do in the future, the most important thing is for Nissan to go its own way.

In an industry that produces 65 million vehicles annually, Ghosn argues, there should be room for most of the players. “I think in our industry, when you do the right thing, you get the right results,” he says. “I don’t think there is anything miraculous.”

What is miraculous to him is Toyota’s consistent ability to execute in an operationally complex business without making many mistakes. “From time to time when you miss something, you’re getting punished for it. If you miss two things, you’re getting harshly punished. If you miss more than two things, then you start to be in serious trouble.”

Not Toyota. Without mentioning the company by name, Ghosn ticks off the list of qualities that make it successful: a learning organization, humble in front of its customers, using profit as the only meaningful indicator.

Notice he isn’t worrying about GM, his almost alliance partner. I think it’s important to note that Ghosn and Nissan are “going its own way.” Sure, learn from Toyota, but don’t just copy. Copying another company is a rear-view mirror strategy. So, I like the sound of that.

Is it really true that Toyota considers profit the “only” meaningful indicator? I know they are in business to make money, and they make a lot of it, but someone could misinterpret that comment… Toyota isn’t concerned about short-term profit, they are thinking for the long term. Doesn’t Toyota consider other short term metrics to be critical for meeting that long term profit indicator?

Most of the business world already considers profit the only meaningful indicator. That or maybe the stock price. Toyota is certainly different. What do you think about any of what I’ve said?

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Mark Graban's passion is creating a better, safer, more cost effective healthcare system for patients and better workplaces for all. Mark is a consultant, author, and speaker in the "Lean healthcare" methodology. He is author of the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, as well as The Executive Guide to Healthcare Kaizen. His most recent project is an eBook titled Practicing Lean that benefits the Louise H. Batz Patient Safety Foundation, where Mark is a board member. Mark is also the VP of Improvement & Innovation Services for the technology company KaiNexus.

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3 Comments on "Ghosn on Toyota"

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  1. B Baker says:

    I agree Ghosn should go his own way. That is what entrepeneurs do.
    If Ghosn means to say that Toyota puts profit ahead of local efficiencies like parts per manhour or whatever then I probably wouldn’t argue with that.
    His comment could easily be misinterpreted especially in the ‘cost obsessive’ culture of publicly traded companies. Everybody wants to reduce cost, and that is a good thing in a vacuum. I think one thing that makes Toyota different is that they also obsess on value. If they can create more value then that creates profits (maybe not as quickly as cutting cost). It may even be more sustainable over the long haul. They spent something like a billion dollars developing the Prius. They certainly didn’t spend a billion dollars because they were in a race to cut the most cost. They did it because they were developing something that the market (plural of customer) sees as value (absurd mpg, it may even have ‘green value’ to certain market segments — if so then capitalism is working).

    So if you define profit as more value as well as less cost then I think Ghosn’s remarks are pretty accurate description of Toyota. If you think profit is purely a function of reduced cost then Ghosn’s comments are misleading. I work in a company that has “Cash is King” as the first of seven ‘values.’ From a lean accounting standpoint “Cash is King” makes some sense. It would lead you away from the temptations that result from absorption costing (that’s another post however). Unfortunately “Cash is King” is usually intrepreted here to mean “don’t spend anything unless it is absolutely necessary.” Its like we are in a race to the bottom. The sad part is I am not sure that the CEO wants it interpreted that way. But it is.

    One could also argue that Toyota puts so much faith in ‘good process’ that measures like profit aren’t what run the company (on a day to day basis). You could make an argument that they are process oriented not results oriented. That’s another post.

  2. Mark Graban says:

    I’ve heard Toyota people describe TPS not as a “cost reduction system” but rather as a “profit maximization system.”

  3. Graham Hill says:

    Mark

    As I sit in my office in Toyota Finacial Services and look at the ticker displayed on the wall opposite me I see three types of information displayed. I see sales and profit targets and our progress against them to-date. I see Kaizen targets. And I see complete customer satisfaction targets too.

    It is taken as read that we only acieve the former, if we concentrate on the latter two. That sales and profits are the rear-view mirror of the customer finance business we are driving forward.

    Graham Hill
    Independent CRM Consultant
    Interim CRM Manager (at TFS)

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