Steve Spear spent six months embedded with a Toyota team as a doctoral student, learning the Toyota Production System by teaching it to a supplier in Kentucky. In this episode, he explains what he calls “high velocity” organizations — companies like Toyota, Alcoa, and Southwest Airlines that outperform competitors not by copying tools, but by converting ignorance into knowledge faster than anyone else in their industry.

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Episode #58 of the LeanBlog Podcast brings us Steven J. Spear as our guest. Spear is a Senior Researcher at MIT, a Senior Fellow at the Institute for Healthcare Improvement, and is the author of the new book Chasing the Rabbit: How Market Leaders Outdistance the Competition and How Great Companies Can Catch Up and Win.

Today, we talk about how he started studying Toyota and his new book, which includes examples from many high-performing organizations in manufacturing, healthcare, and other industries – fascinating reading.

Note – the book was re-released with a new title: The High-Velocity Edge: How Market Leaders Leverage Operational Excellence to Beat the Competition.

For earlier episodes, visit the main Podcast page, which includes information on how to subscribe via RSS or via Apple Podcasts.

If you have feedback on the podcast, or any questions for me or my guests, you can email me at leanpodcast@gmail.com or you can call and leave a voicemail by calling the “Lean Line” at (817) 372-5682 or contact me via Skype id “mgraban”. Please give your location and your first name. Any comments (email or voicemail) might be used in follow ups to the podcast.

Steve Spear on Chasing the Rabbit: Why Toyota and Other High Velocity Organizations Outperform Their Competition

Lean Blog Interviews: Episode 58 with Steve Spear

Mark Graban: Hi, this is Mark Graban. Welcome to episode number 58 of the Lean Blog Podcast for January 19th, 2009. Our guest today is Steven J. Spear, a senior lecturer at MIT and a four-time winner of the Shingo Prize for Research Excellence. He is a senior fellow at the Institute for Healthcare Improvement, and we are gonna talk today about his new book called Chasing the Rabbit: How Market Leaders Outdistance the Competition, and How Great Companies Can Catch Up and Win. I hope you'll enjoy the conversation today. Check out his book.

Once again, our guest here on the Lean Blog Podcast is Steven Spear. I want to thank you for taking time to join us today.

Steve Spear: Oh, you're quite welcome. Thanks for having me.

Mark Graban: I'm sure our listeners — I hope most of them know you from going back to your writing as a PhD student at Harvard and your Harvard Business Review articles that have been so influential in the lean world. I was wondering if you could tell us how you got started studying Toyota and took initial interest in this whole area.

How Steve Spear Started Studying Toyota

Steve Spear: Sure, I'd be happy to. My interest in Toyota dates back quite some time. I was originally interested in Japan when I was in college. This would've been in the early and mid-eighties. There was all this hullabaloo about how Japan was gonna take over the world, and I was really quite interested in how that was happening.

Gradually the discussion was not so much Japan as a country overtaking us as a country, but some very strong Japanese competitors, particularly in manufacturing, overtaking their US rivals. There was ample evidence that that was going on, particularly in autos and steel and elsewhere.

As a graduate student I invested pretty heavily in learning about Japan. I went to live in Japan, and when I came back from trying to understand firsthand what was going on, the lean manufacturing movement was well underway already. I got back to the US in the mid-nineties, and the thing that was so shocking is that with all the attention that had been given to Toyota in particular, all the efforts that had gone into unlocking what was going on inside of Toyota, with all the transparency Toyota was showing, there was no one who was really replicating Toyota's tremendous success.

And in fact, for whatever advances were being made in terms of efficiency and initial quality by Toyota's competitors, Toyota was widening the gap because it was increasing the dimensions of play. It was increasing its product portfolio, entering new markets, creating new brands like the Lexus. As we came to see, it invented new technologies like the hybrid drive.

So mid-nineties, we approached Toyota. I was a doctoral student at Harvard Business School at the time. My advisor and I approached Toyota and asked them, with all the openness Toyota has provided to its competitors, what is it that people are missing?

They explained that they have a very hard time explaining what they do, but they were perfectly willing to show us. In fact, they were perfectly willing to teach me if I was willing to invest the time. And so that started this odyssey, which has continued, but was very intense initially.

Working on the Line at a Toyota Competitor — Then Learning TPS

Steve Spear: I spent time working on the line at a Toyota competitor. The idea was to understand what it felt like to work in another environment. And then after that, I spent six months as part of a Toyota team trying to learn the Toyota Production System by teaching it and developing a first-tier supplier in Kentucky.

Mark Graban: That's really interesting — they would have you go work at another factory. Was that part of their typical training, or was that something they created as a learning opportunity for you?

Steve Spear: The idea of working in another factory at the time seemed idiosyncratic. But what I've come to appreciate about Toyota is that their general approach to how they design work is to create the opportunity to be surprised.

In my own case, the idea was that if I went into a Toyota plant without a good grounding in what other people were doing, I would see things, but I wouldn't see things in terms of being the same or different from what was done elsewhere. I would just see things as things were done.

So for me in particular, I was able to start seeing differences in terms of design of work, problem solving, problem identification, the relationship between first and second-level supervisors and frontline employees, and that sort of thing.

More generally, what I came to appreciate about Toyota is that this idea of “create the opportunity to be surprised” is representative of how they approach most everything they do. It gets to a basic problem that affects not only Toyota and their competitors in the auto industry, but companies and organizations more generally. When they set out to do work — and typically this work has some design component, whether it's designing products or services or the processes by which those products and services are brought to bear — there's a tremendous amount of uncertainty, because most of the time when you start something new, you don't have the information or the wisdom to arrive at perfect answers.

What Toyota had realized is that if you create the opportunity to be surprised — by making very clear what you're doing and why, and making very clear when something has happened contrary to your expectations — you'll very quickly hone in on what it is you don't know. And if you hone in quickly on what you don't know, you can recognize the things you don't understand and then invest your efforts and resources in converting ignorance into knowledge.

The Argument in Chasing the Rabbit

Steve Spear: The argument I make in the book Chasing the Rabbit is that great companies like Toyota win because they outrace their competition. The source of their inherent velocity is that they are identifying things they don't know, seizing those opportunities, converting ignorance into knowledge, and putting that knowledge to good use at rates much faster, with durations much longer, over breadths much wider than anyone else in their sector.

The examples I give are not just from Toyota but many other situations. Alcoa, which made huge advances in workplace safety. Many hospitals which have eliminated a whole number of really prevalent problems that cause great pain and suffering at other hospitals. There's a chapter devoted to the Navy's discovery of how to do nuclear propulsion in a perfectly safe fashion.

The underlying theme of all these examples is that these organizations, which have been really great competitors over not only years but decades, are great competitors precisely because they create the opportunity to be surprised, and when they're surprised, they're very quick to use those surprises as signals and triggers to get better at what they do.

What Makes a “Rabbit” Organization Different

Mark Graban: So by the rabbit, you mean companies like Toyota. Do you find that all companies that outperform their industry share some common themes about how work is designed and how problems are solved?

Steve Spear: It's a great question. The notion of chasing the rabbit — the reason for the title is that there are a whole host of industries where competition should be incredibly intense. Whatever the organization, they can't do the classic positioning and differentiation that is encouraged of managers in a typical MBA program. They have many competitors. They can't lock up their customers with a monopoly. They can't make their suppliers dependent on them as their sole customer. They can't erect barriers to entry. They're subject to the same regulations and macroeconomic forces as everyone else.

When you describe a situation like that — an incredibly level playing field — one would expect very ferocious competition where it's very hard to achieve and sustain profitability, very hard to achieve and sustain leadership. And it turns out for most companies in that kind of situation, what one would expect comes true. It's brutal.

We see this with the major automakers. Even before the current economic downturn, many if not most of them were struggling to keep up. We see this in commercial aviation. I heard recently someone say that since deregulation, not a single major US carrier has made money on a cumulative basis. There are many other examples where you have intense competition.

Then across these industries, what you discover is that one after another have these anomalies. In the auto industry, everyone's struggling, and even Toyota's struggling now, but Toyota is grossly outperforming its competitors. In commercial aviation, everyone struggles, some once-heralded companies like Pan Am and TWA have gone out of business, Continental's been through bankruptcy twice, and you have Southwest, which has had 35-plus years of profitable operations.

There are examples in less well-known industries — microchip manufacturing, healthcare, financial services. The common theme across all these leaders is they approach the management of their work in a decidedly different way when compared to their competitors, but in a decidedly similar way when compared to each other.

It gets back to this basic issue that all these organizations are responsible for the design and operation of incredibly complex systems that must bring to bear the contributions of many different people occupying many different functions and specialties. Most people, when they find themselves faced with that responsibility, do their absolute best. It's not like they're slackers.

But when they do their best, inevitably they get something wrong. And then at that point, that's the real decision point. What ends up happening in many organizations is that they create a system, it's imperfect, and then they just sort of muddle on through whatever the imperfections are.

The exceptional organizations get to those imperfections, and with their tremendous commitment to seeing problems as they occur, they run into trouble, but they run into trouble earlier rather than late, when the trouble is very small rather than large. Rather than just muddle on through, they're very quick to see the problem and swarm it to contain it.

Four Distinctive Behaviors of High Velocity Organizations

Steve Spear: The second thing is when they see and swarm the problem, they solve it. The problem is the reflection, the indication of the part of the work they designed about which they were ignorant. So they're very quick to convert what they don't understand into something they do understand. That becomes a second distinctive behavior.

The third distinctive behavior is that they recognize that what they've learned is one of the few sources of competitive advantage they have. These companies are essentially in commodity businesses. The stuff that goes into their business is widely accessible. The things they sell have many competitors. So what these folks recognize is that the only thing they have which others don't have is the knowledge they've created on how to conduct their business. So one characteristic behavior is they're very quick to see and swarm problems. The second is that they're very quick to solve problems in a disciplined way that builds knowledge. The third is when they create new knowledge locally, they're very determined and disciplined about making sure that knowledge has systemic, broad, wide applications throughout the organization.

Then the fourth really distinctive behavior is that of leadership. In many organizations, we see leaders responsible for establishing priorities, allocating resources, and assigning responsibility. But in these high velocity organizations, these rabbit organizations, the leaders have an extraordinarily strong commitment to developing the capabilities of everyone else to design work so problems are evident, to solve problems when they're seen, and then to share what they've learned.

One of the phrases that's been kind of helpful is to think in terms of the typical leadership model being a transactional model — you make decisions and choices about who to hire, who to fire, what market to enter or exit, what to buy and what to sell. In these high velocity organizations, leadership is very developmental and focused on discovery.

Why Companies Fail to Catch the Rabbit

Mark Graban: When you talk about those thought processes and management systems, it seems like those would be very difficult, if not impossible, to glean off the surface of a 90-minute tour through a Toyota facility. Is that part of the challenge when we talk about companies trying to catch up? GM and Ford and Chrysler have all, in one way or another, been trying to emulate Toyota's practices for 15 or 20 years now, and they're struggling. Why is it so hard for companies to figure out what the Toyota of their industry is doing?

Steve Spear: Your question hits upon at least part of the obstacle. What's happened is a lot of people have gone into organizations like Toyota and quickly get caught up with the shop floor manifestations of a high velocity approach to management. They'll go in and see continuous flow, pull systems, value stream maps, standard work, production cells and that kind of thing.

What they're really seeing at that point is not the management system per se, but the consequence of applying that management system to production. If you think in terms of horizontal and vertical relationships — horizontal being the flows of material from receiving through shipping — that's what they see, how those flows and work are managed. But what they're failing to see is the vertical relationships which connect the most senior leaders to the frontline workers.

Those behaviors are a lot harder to see because they take some time. That's one obstacle. You're not gonna see the role of Gary Convis at Toyota Georgetown, or Norm Bafunno at Toyota Indiana, or Admiral Rickover who successfully ran the Navy's nuclear propulsion program for 60 years, or Paul O'Neill who was CEO at Alcoa. You're not gonna see the characteristic behavior in 90 minutes, nor are you gonna see the characteristic behavior they're trying to encourage and inspire within their organization.

The second obstacle: I once had a professor who said the cliche is that seeing is believing — that the facts influence our perception of reality. He said what really is the case is that believing is seeing — the mindsets we bring into a situation so shape our perception of reality that it takes overwhelming evidence to convince us that we need an alternative way of perceiving what's going on around us. So if you walk into one of these organizations, even with a huge amount of time, if your mindset is still wrapped around the idea that a leader is someone who makes the tough calls, tells people what to do, you're gonna miss a lot of this other stuff and think it's just the window dressing around what leaders fundamentally do.

Then there's a third obstacle. Even if you have the time, and even if you perceive the differences, these things take a lot of practice. As I lay out in Chasing the Rabbit, the behaviors that distinguish Toyota from its competitors, Southwest from its competitors, and the other high velocity organizations I identify — the behaviors are easy to describe. They're fairly short. It probably wouldn't take much effort to get all the main points of Chasing the Rabbit onto a single index card.

But then it becomes the question of: do you have the discipline to practice them? And not only practice them, but practice them with the other people you work with. We could sit down and tell someone what the great plays are in football and even assemble great players. But unless we have the discipline as a team to practice those plays, both within our specialties and then as a cohesive unit, we're not gonna be very good.

So there are at least three levels at which any attempt to imitate the leaders can fail.

Encouraging Signs in Healthcare

Steve Spear: The optimistic part of the book title is that there is evidence that companies and organizations have accelerated themselves. In chapter five, I talk about engine design at Pratt and Whitney, where they did a great job of accelerating their ability to make discoveries that had competitive and commercial impact. There's another example of a company around internet advertising — a company originally called Avenue A, later re-christened as aQuantive. Chapter 11 describes efforts at a number of different hospitals to become high velocity and discover how to deliver great care with less effort and less cost — not only improving the quality of care but diminishing the risk both to patients and staff.

Mark Graban: That's such a different mindset from a hospital saying, “Oh, we're going to go implement a bunch of lean tools.” It seems like the opportunity is in adopting that mindset and that management practice. Maybe in a future discussion we can get more specifically into healthcare. But maybe a final question, and this might be a bit unfair — is there a rabbit within healthcare, or a collection of near-rabbits that you could point to?

Steve Spear: It's a very good question. As someone who's a payer, a patient, and a family member of patients, I desperately wish there were even a single hospital or delivery system where you can point and say they have figured it out.

What I can be optimistic about is that there are a number of examples of organizations that are trying to figure it out. I've mentioned several times in my writing, both in Harvard Business Review and in the book, Virginia Mason Medical Center in Seattle. What makes them so noteworthy is the tremendous commitment Gary Kaplan, the CEO, has made towards not only bringing this mode of discovery into his organization, but actually modeling it and championing it himself.

There's a whole host of other examples associated with the Institute for Healthcare Improvement and the 100,000 Lives Campaign that IHI has championed over the last number of years.

I'm here in Boston, and one local example which is very encouraging is Beth Israel Deaconess Medical Center. The fellow who's CEO there, Paul Levy, comes to healthcare not from healthcare but from running the Massachusetts Water Resources Authority — a very process-oriented agency where quality and operational excellence are really paramount. You can't afford to have bad water. You can't afford to have shutoffs in water delivery.

At Beth Israel Deaconess, what he's done is started with the mindset that things do go wrong in delivering medical care to patients, and the only way to make sure that things go right is to be absolutely insistent that when things do go wrong, we're well aware of it. He's done a whole number of different things to encourage tremendous transparency within the organization.

For Beth Israel, this is still in the early stages. Time will tell if their approach of managing work to see problems, and when problems are seen swarming them, can be converted into problems getting solved — and when they get solved, it gets converted into much deeper organization-wide understanding of how to deliver care with fewer defects, higher quality, less cost, and less effort. There are some encouraging signs, but in terms of what I'm aware, there's budding understanding and one can only hope that it develops further.

Mark Graban: I think we can all agree on that. Well, for today I want to thank you for taking some time and talking to us and introducing the new book, Chasing the Rabbit, which is from McGraw Hill. It's a really fascinating read. And maybe as a final thought, Steve, if people listening are interested in having you come speak to their organization or do some sort of work with them, how might they go about reaching you?

Steve Spear: I appreciate the question. Probably the easiest is my website, stevenjspear.com. And just one closing thought — I do appreciate the chance to speak with you today and through you to your audience. One of the things that's been very exciting about the work I've undertaken over the last 15 or 20 years is that the basic question from a manager's perspective is: how do you do things which are incredibly valuable, but bring incredible value through the hard work of other people?

The lessons that come out of this research, from the great examples like Toyota, Alcoa, and the others, are really quite inspiring because what they say is that an individual going into work on a given day can be far more successful at creating something valuable for someone else. And that managers going into work every day can be increasingly successful at unleashing the potential of their fellow human beings.

Mark Graban: Yeah, and I think that would be great if we had more of that. So hopefully people will be inspired by the book and the stories to take some steps forward. Again, thanks for joining us and being here on the podcast.

Steve Spear: Oh, you're quite welcome, and if there's another opportunity, I'd certainly welcome it.