Project Lean Enterprise
Paris
May 10, 2006
Why Toyota Won & What Happens Next
James P. Womack
Chairman, Lean Enterprise Institute
By the End of 2006…
• Toyota will pass GM to become the highest volume
motor vehicle manufacturer and the world’s largest
manufacturing firm by sales.
• GM with its mass production system -- praised by
Peter Drucker, described in detail by its inventor
Alfred Sloan, and operated with remarkable
continuity for more than eighty years since its
completion in the 1920s – will have been deposed
by Toyota with its lean production system.
• Exactly why did Toyota win?
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Common Wisdom
GM had:
• Excessive wage costs for its unionized workers.
• Pension crisis with salaried and unionized retirees.
• Uncompetitive factories with low-quality products.
Toyota had:
• Lower compensation costs due to young work force.
• A weak currency in Japan.
• A lucky break from high oil prices in recent years.
As a result:
• Toyota won.
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Why Toyota Actually Won
A complete business system, previously the world’s
best, has been beaten by a better business system,
which is the new world best practice.
Toyota’s method for:
 Listening to the customer and engineering products
 Managing and developing suppliers
 Dealing with customers (Japan only)
 Running production operations
 Managing policy to achieve and sharpen alignment
Created overwhelming competitive advantage.
(And production operations may well be the least
important of these!)
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Some Evidence
• Toyota’s selling prices are much higher than GM’s
due to refinement, delivered quality, and durability.
• Toyota is able to get new designs to market vastly
faster than GM as market conditions change,
• Toyota needs fewer hours of engineering and less
capital to launch products with a given capacity.
• Toyota’s suppliers have higher margins and lower
selling prices, better quality & fresher technology.
• GM’s steady decline in its home market has created
a pension crisis that confuses cause with effect.
• As a result of weak policy management, GM has
been very slow to change.
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Prognosis
• GM (and Ford) will shortly undergo profound
transformations, with new managements, and
remake themselves in the image of smaller
Toyotas (just as Ford remade itself in the image
of a smaller GM when Henry Ford died.)
• Toyota will work hard at managing the political
aspects of the transition and obsess – quite
appropriately – about “big company disease”.
• Remember that GM reached its peak in 1955, the
year Sloan retired. Toyota will shortly see a
generational shift as Eiji Toyoda and Fujio Cho
disappear from the scene. Is this Toyota’s zenith?
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What Happens Next?
• Chinese and Indian companies emerge as the
“next Toyotas”? Possible, but not soon and
there is no evidence of a new Chinese or Indian
business system – only high energy and low
factor costs.
• Losers like Nissan continue to merge, creating a
stable global oligopoly? Possible but difficult –
mergers usually fail in the auto industry and
there will be a steady stream of new entrants.
• The focus of this industry shifts from selling
brilliant objects to solving mobility problems?
My and Dan Jones’s belief.
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The Age of Brilliant Objects
• Most striking achievement of lean production has
been introduction of truly superlative objects, with
few defects, high refinement & great durability.
• But is this all consumers want today?
• As we look ahead we can see that the consumer’s
most precious asset is not money but time.
• Today’s brilliant objects often squander consumer
time because consumption – better called problem
solving -- is a complex process of searching for,
obtaining, installing, maintaining, repairing,
upgrading & recycling brilliant objects.
• No current-day auto company (possibly excepting
Toyota in Japan) addresses this problem.
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The Age of Lean Solutions
• If consumption is a problem-solving process, it
follows that there should be principles of lean
solutions similar to the principles of lean thinking
(value, value stream, flow, pull and perfection.)
• Dan Jones and I propose the following:
 Solve my problem completely
 Don’t waste my time
 Provide exactly what I want
 Exactly where I want
 Exactly when I want
 Continually reduce my total cost (time, money and
hassle) to solve my problem.
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How Would This Work in Auto Industry?
The simple problem of auto repair:
• In a typical repair sequence the consumer takes
many time-consuming steps through a complex
process simply to schedule and complete a repair.
• In Europe the chances that the repair will be done
correctly and completed at the time promised are
only about 60%. (That’s 400,000 ppm defective in
quality terms.)
• Yet this is simply a process, with consumer and
provider components, like any process in
manufacturing.
• It can be mapped and dramatically improved!
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The Problem of Auto Repair
Dan Jones recently worked with a large car dealer in
Portugal to test our hypotheses:
• For typical repairs:
 Consumer time expended cut in half.
 Fraction of jobs done wrong and late halved.
 Total cost of a repair to the dealer cut by 30%.
 Job satisfaction in the dealership much higher.
Win-win-win for consumer, provider & employees
simply by mapping the process and applying lean
principles!
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But This Is Only Part of Total Problem
Consumers must also:
• Search for the vehicles needed.
• Obtain (lease or buy) them.
• Arrange delivery.
• Register, insure, and inspect them.
• Repair them in the event of mishap.
• Upgrade them as necessary.
• Recycle them.
This is time consuming and often frustrating.
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A Mobility Solution
A mobility provider:
• Obtains the vehicles you need – any type from
any manufacturer
• Brings them to you.
• Registers, insures and inspects them.
• Maintains them.
• Repairs them.
• Upgrades them.
• Recycles them.
For considerably lower total cost (to you and the
provider) than current “mass consumption”
methods.
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The Challenge for Existing Car Makers
• Most of us want access to the complete range of
brands, not just Toyotas for example.
• Car companies tend to be very “assets
backwards”, determined to “move the metal”,
specifically their own metal.
• Mobility providers are likely to be a new type of
retailer rather than a new type of car company.
• Even Toyota may face a challenge to its role in the
consumer’s life.
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Lean Solutions
• Can be devised for any problem – healthcare,
shelter (i.e., housing), long-distance mobility
(i.e., air travel), personal financial management,
personal logistics (i.e., shopping.)
• Reduce total cost to consumer and provider
while lessening everyone’s hassle.
• A simple matter of creating brilliant processes
to solve every problem, by better specifying
true value and taking out waste!
• Turning consumers and providers from
antagonistic strangers into long-term partners.
• The logical next step in lean thinking in the age
of brilliant solutions!
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