5-2007-Learning From Toyota - How Action Learning Con Foster Competitive Advantage in New Product Development - Fuchs

Action Learning: Research and Practice Vol. 4, No. 1, April 2007, pp.
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Downloaded By: [Fuchs, Barbara] At: 14:23 23 May 2007
Learning from Toyota: how action learning can foster competitive advantage in new product development (NPD)
Barbara Fuchs
Liechtenstein University of Applied Sciences
New product development and commercialization are essential to entrepreneurial growth and international competitiveness. Excellence in this area is strongly supported by individual and organizational learning efforts. By analyzing how Japanese car manufacturer Toyota organizes learning, this paper evaluates the potential of action learning to manage organizational change in the area of new product development (NPD). The indications of the study are that action learning represents an efcient strategy to manage continuous change necessary for the successful innovation of products and processes. Additionally, workers at Toyota involved in learning practices similar to action learning are personally committed to their jobs and satised with their careers. The ndings also suggest that action learning offers a valuable toolkit approach to anticipate and rapidly react to external shocks and changed market conditions. Managers are able to revise and restructure work organization by reconciling grown bundles of unique capabilities with new skill requirements to cope with strategic challenges.
Keywords: Corporate restructuring; New product development; Skill management; Toyota production system; Work organization
Introduction New product development is one of the key driving forces for companies to build and maintain a competitive advantage in their existing markets, to enter and to create new markets. Learning in relation to product development is crucial in three aspects. First, only products that satisfy customer needs will be successful in the market. New
Liechtenstein University, Furst Franz Josef Strasse, FL-9490 Vaduz, Liechtenstein. Email: barbara.fuchs@hochschule.li
ISSN 1476-7333 (print); ISSN 1476-7341 (online)/07/010025-19 # 2007 Taylor & Francis DOI: 10.1080/14767330701231446
26 B. Fuchs products are either the result of improvements in design, features and functionality for already dened customer segments. For example, car owners expect a new version of their car model to exhibit the same basic characteristics but with a new touch in style and improved performance. Or, companies are trying to acquire new customers by launching products with a high level of innovation. Many companies have historically stressed traditional research and development in the belief that products stemming from new technologies will almost automatically meet latent customer needs and create new markets. However, growing experience with market failure or slow market take up, has led to a shift from pure technology motivated innovation to a more balanced mix of technology-push and market-pull orientation (Crawford, 1979; Cooper, 1990). Learning about existing customer needs is not easy, especially when it comes to products which customers have not yet consumed. Traditional market research can produce useful information, but its means are limited when it comes to exploring latent needs and future demand. Customers are often unable to articulate their expectations about products, although they can usually tell what they like and do not like about existing products. They can also show how they use artefacts which a new product might substitute. Interactive forms of learning, such as lead-user methods and testing of user-behavior with prototypes are thus more likely to identify subtle and equivocal customer needs that form the basis for product success (Clark & Fujimoto, 1991; Herstatt & van Hippel, 1992). Moreover, learning about customer needs must not be conned to the marketing department. Every activity in the company interfacing with customers produces valuable customer information, which needs to be systematically gathered, evaluated, and utilized for new product development. Secondly, new product success is closely linked to the overall production and marketing capabilities of a company. A positive product experience is not limited to the material product, but customer services and perceptions. For example, the procurement of parts by suppliers engaged in illegal practices such as child labor, or a lack of customer orientation in sales, can turn a good new product into a market failure. Production and marketing capabilities can either spur innovation or impose signicant constraints on product innovations, e.g., due to outdated infrastructure or inefcient work organization. Developing new products should not be carried out solely by employees in research and development, but has to be an integral part of the total production system. In this respect, learning about potential product improvements and innovation has to expand to the whole value chain of the company. Employees have to be able and willing to put forward, promote and accept changes in work organization as a driving force for or a result of innovation in technology, products and processes (Morgan & Liker, 2006). Individual learning efforts have to be nurtured. Positive results of individual insights have to be transformed into new general standards and new forms of work procedures. The third aspect of learning in relation to innovation refers to organizational continuity and dynamic change. Companies often tend to develop a certain inertia once they have established successful market cultivation. New product development and commercialization are ensured by a unique bundle of capabilities internalized and
Learning from Toyota
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practiced by all employees and hierarchies. But markets are not eternally stable and unchanged. Thus, companies also have to build the capability to anticipate changes in their competitive environment and to renew their skill set and routines. Otherwise, they risk going out of business as they are unable to respond timely to external shocks or changed market conditions (Nobeoka, 2006). Companies that have built and maintained a competitive advantage in new product development are capable of both continuously improving their products and processes and, at a certain moment in time, initiating and dealing with organizational discontinuity and disruptive change. Supported by a specic culture, learning in these companies supports the preservation and enhancement of existing capabilities as well as the acquisition and implementation of new skills when needed (Senge, 1990; Dixon, 1994). Although the importance of learning has been widely discussed in concepts of learning organizations, innovation and knowledge management (Senge, 1990; Nonaka & Takeuchi, 1995; Davenport & Prusak, 2000; Gupta & Govindarajan, 2000), practitioners in search of tangible strategies and tools to design and manage individual and organizational learning are left with little to hand. Action learning has the potential to ll this existing gap between largely theoretically oriented approaches and corporate practice by proposing a conceptual framework enriched with guidelines and tools for practitioners. Action learning also promises to allow practitioners to systematically address various crucial aspects of learning, and to manage individual development and organizational change. The purpose of this contribution is to investigate the relationship between action learning and a companys capability to manage individual skills and organizational development in new product development. To do so, the rst part briey discusses the concept of action learning and its properties relative to innovation and new product development. In the second part, the focus shifts to the experiences of Japanese car manufacturer Toyota. Toyota has built and maintained a competitive edge in the global automotive industry for the past 50 years and has become the worlds second largest automobile manufacture. Besides high protability in manufacturing and marketing, Toyota excels in terms of new product development with outstanding lead-user times, short product cycles, high quality and technical innovations. To understand Toyotas new product development in detail, a process perspective was employed which allowed close exploration of its historic formation and how learning was practiced in the traditional Toyota production system (TPS) that prevailed until the early 1990s. This section also highlights how individual and organizational learning efforts were implemented and sustained by the system. The study then turns to portraying Toyotas management of radical change in new product development in response to external shocks, altering customer preferences and increasing global competition. This analysis of the restructuring process and the organizational outcomes suggest that Toyota has carried out a learning initiative comprising practices inherent to action learning. Learning at Toyota supports customer oriented new product development along the whole value chain, fosters system thinking materializing in highly integrated products, and allows Toyota to deal efciently with changing market conditions. Individual learning is continuously promoted and transformed into new
28 B. Fuchs collective organizational standards, ultimately preventing costly corporate restructuring as a last-resort strategy. Although embedded in Japanese industrial relations, the ndings indicate that learning at Toyota strongly resembles action learning. The paper therefore ends with arguing that action learning is a comprehensive tool to leverage Toyotas success in new product development, which is largely based upon learning practices specic for highly dynamic and uncertain environments.1 The fruitful alliance of action learning and new product development Action learning can be dened as a structured three-phase process that involves small groups of people from different disciplines to come up with new solutions for real problems and to learn from this experience. The rst phase in the process (system alpha) comprises questioning, identication and detailed description of the problem to be solved. Questioning aims at opening up fresh perspectives and prohibits participants losing valuable time on researching the past. Questioning will result in a precise written description of what needs to be solved. In the second phase (system beta) participants of the group will thoroughly investigate the problem, apply and revise existing knowledge, come up with solutions and assure their implementation. It is in this phase, that participants can apply and revise knowledge and skills, which they have acquired in the past. The third phase (system gamma) consists of reection on the whole process, to assess and reassess what has been learned and what the consequences are for self and others (Revans, 1982; Marquardt, 1999; Dilworth & Willis, 2003). Reection often occurs in every phase of action learning to increase awareness for the individual learning progress. Each action learning phase is supported by a set of tools and methods to achieve the twofold results of problemsolving and learning. Action learning can be applied in various contexts and organizations looking for new solutions to an existing problem. In particular, action learning exhibits a set of properties patronizing innovation and new product development: . Learning about customer needs, increasing customer interaction and communication. Effective product development relies on a products design ability to create a positive product experience. This involves a complex translation of product information from customers to engineers to production to sales and back to customers. Learning about customer needs, potential problems and requirements for procuring, producing and marketing new products involves intense communication with parties internal and external to the company. Information has to be gathered, evaluated and exchanged between customers and company representatives, between functional departments involved in the process, between the company and distributors and with stakeholders interested in the success of new product development (Fujimoto & Clark, 1991). Action learning sets are destined to serve these manifold communication needs between customers, stakeholders and all kind of professional experts. Because
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action learning sets are composed of persons who own a problemin this special case coming up with a new product conceptthey are able to question existing product solutions and production knowledge and to discuss new aspects and innovative approaches. In addition, action learning sets are acting in an atmosphere of open and mutually agreed information access and exchange. In action learning the provision of information necessary to solve the problem, whether internal or external to the company, is negotiated and agreed before the action learning set starts working. There is a common understanding to deliberately share and provide information. By reecting on what set members have learned through the problemsolving process, members can eventually come up not only with a solution, but with proposals for general improvements in the retrieval of information, in the ow of communication and in closing gaps of knowledge. . Learning about product integration, fostering system thinking. New product development is a complex task combining what customers want with what technology can deliver and what customers can afford. Companies want to deliver customers the best possible solution and to do it protably. Product developers need to have an understanding of the whole system and its interdependencies and be willing to work with other functions and departments to deliver a fully integrated product experience. Moreover, emerging problems in development are hardly caused by a single factor, but multivariant inuences that can only be detected if developers are aware of the whole process. Analysis of outstanding companies in product development have shown, that it is the overall pattern of consistency in their total development system, including organizational structure, technical skills, problem-solving processes, culture and strategy that makes them so successful (Clark & Fujimoto, 1991). Action learning sets are by denition heterogeneous. People with different backgrounds, from different organizations and functions are asked to join a set to assure diversity. During the rst and second phase of an action learning program, set members have to investigate the problem deeply, challenge existing knowledge and try new approaches to solve the problem. This investigation must take into account all inuential factors and possible impacts of the suggested solution to the whole system, for example discussing questions of how new products will affect overall production cost and how customers will benet from the overall integrated product experience. In this context, action learning shows a common denominator with the concept of lean thinking. Lean thinking targets the continuous improvement of the whole value chain to better serve customers. Ideally, action learning set members will apply lean thinking to solve their targeted problem by eliminating all intermediate steps and hand-offs in the product development and production process not adding value to the customer (Womack & Jones, 2003). In the nal phase of action learning (gamma system), reection upon learning aims at reconsidering the structures of the system and at deducing proposals for changing the system if this is necessary. If carried out accurately, reection will be structured
30 B. Fuchs and individual insights into learning progress will be formally documented. By doing so, individual learning experiences can be translated, e.g., with the help of learning scripts and routines, into new general standards improving both organizational processes and the capability to empower employees to acquire new knowledge (Revans, 1982; Donnenberg & De Loo, 2004). . Learning across the organization, delegating competence and facilitating problem-solving. Studies on product development have found that a project-oriented approach, rather than a function-oriented approach, leads to a higher performance in terms of lead time, efciency for individual projects and productivity in new product development (Takeuchi & Nonaka, 1986; Clark & Fujimoto, 1991). As the reduction of product lifecycle time puts more pressure on companies, managing new product development projects becomes a core competence. Successful companies are developing products in parallel asking project managers to facilitate tasks, duties and interdependencies both in a single project and between projects. Top management delegates major competences and responsibilities to their project managers and engineering staff, who take over full responsibility for the overall project and its outcome. Before starting an action learning program, supporting management will name a facilitator or set adviser. He or she will make sure that the set is provided with necessary information, has access to experts and managers, is able to challenge and try alternatives and that the set is acting within the set rules. The management will agree beforehand to devote resources to the action learning set, to make sure that action learning set members have full competence to act as problem-solvers and that solutions created by the set will be implemented. Even, if that means that the organization has to be restructured. Facilitation and top management support integrate the action learning set into the overall organization and make sure that their solutions and learning will materialize at all levels of the organization.
Learning in Toyotas new product development organization Since the 1980s, when Japanese domestic car production in units became the worlds largest, the Toyota production system (TPS) has become synonymous with the concepts of lean thinking and lean production, which are characterized by a customeroriented ow of the production process, just-in-time supplier relations, continuous improvement (kaizen), exible mass production and workers mobility (Shingo, 1989; Ohno, 1993; Liker, 2005). Although often portrayed as a smooth process, during the early 1990s, Toyota had to cope with major problems concerning job satisfaction, low protability and costly new product development. However, Toyota soon managed to overcome this crisis by employing traditional learning practices to analyze its market position, dene new strategies and timely restructure its organization by growing new competences and renewing the overall production system.
Learning from Toyota The rise and fall of traditional new product development
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When Toyota started out in the automobile business after the Second World War, the Japanese car market was comparatively underdeveloped with an average of 100.000 units sold annually. European and US markets for personal cars had been steadily evolving since the 1920s. In the US, the all-purpose road cruiser with a large body and engine dominated the market offering a comfortable cabin and a soft ride. European cars were delivered in a greater variety based on outstanding space and fuel efciency, a rm ride, precise handling and functional sophistication. While western producers were designing their cars for sophisticated, third-generation drivers, Japanese companies serviced mainly rst-time drivers with unstable consumer preferences. Early product concepts in Japan, e.g., the Toyota Corolla, were thus borrowed from the US and Europe to test customer acceptance, learn about their preferences and win their loyalty (Clark & Fujimoto, 1991; Fujimoto, 1999). The product development cycle at Toyota started with intense market research and analysis of future trends in consumption and production. Based on this information, top managers dened high-level product strategies comprising quantitative performance and cost targets. Then the new product development department was charged with designing the model (Hino, 2006). To accomplish the highly complex integration of components and functions, Toyota established the so-called heavyweight project manager organization in 1953 (Fujimoto, 1999).2 This project-oriented matrix organization was characterized by the specic role of project managers coordinating development across six functional divisions (design, engineering for body, chassis, power and electronics, and product evaluation and testing) and the utilization of the Japanese employment system. For every single new car model a project manager was appointed, who was responsible for the overall delivery of the product across all engineering functions, production and marketing. Only charismatic engineers of increased seniority were appointed to this position of project management. They had been trained in several functions and departments of the company, and had acquired a broad set of skills to understand how each function had to be incorporated for meeting strategic objectives, requirements from production and marketing and quantitative targets. Cooperation and integration with marketing was usually carried out through focus groups and early prototype testing with potential customers to better understand their needs and reasons for design rejection or willingness to purchase. Integration with production was realized by the consultation of manufacturing experts and extensive paper-based evaluation and checks of product design, concepts and production requirements embedded in the overall Toyota production system (TPS). Project managers were given high authority over functional division managers and were grouped in the product planning division. The goal of this product planning division was to make sure, that basic product concepts and learning from single projects would be shared between project managers resulting in synergies and shared components. A general manager was appointed to this division to ensure this transfer of knowledge and support communication. During the 1960s Toyota had about 10 project
32 B. Fuchs managers supervising ve to six staff members in the product planning group and another 5 to 20 engineers from functional divisions working on their single development projects. Basic technical research was carried out at the Toyota main technical center in Higashi-Fuji (Nobeoka, 2006). The early success of Toyotas new product development was also spurred by the traditional Japanese employment system fostering multiple skilled workers, system thinking through on-the-job training and mandatory job rotation and the remuneration of individual and work group learning efforts. Historically rooted in the rapid transformation of traditional to modern society, education in Japan promotes the acquisition of general rather than special skills.3 Socialization aims at compromising individual desires to the collective objectives of society as a whole or to special groups, e.g., a school class, sport team and work group. Social status and personal satisfaction is mainly achieved by contributing to their success. Because pupils and students are promoted every year to the next grade, they are eventually entering the labor market at the same age. This equality of age has a strong impact on how personnel and professional careers are managed, especially in large Japanese corporations such as Toyota. Practically, all new employees are hired only on April 1st, when the Japanese scal year starts. Although there are no contractual agreements or legal bonds, newly hired regular employees are still guaranteed lifetime employment with the opportunity of an internal career and seniority based wage progression until retirement. In return for this job security, Japanese companies expect new entrants to fully commit to their jobs, to be highly mobile and exible and to adapt quickly to new routines and challenges (Yamada, 2000). Competition among employees of the same age group is ensured through the promotional system resulting in different internal careers and levels of compensation. Every new entrant is trained and supervised by a senior manager for two years on the job irrespective of his or her formal education. For example, new engineers are often trained in production, marketing and sales during these two years before they start their rst regular assignment in new product development. At the end of this initial on-the-job training, individual performance, talents and social skills are evaluated by the supervising and other senior managers. Supervising managers are putting much emphasis on the junior employees ability to learn, to dene new job requirements from his or her experience, to communicate and to retrieve necessary information to accomplish the job. Based on this nal evaluation and comparison among new hires of the same age, employees are being promoted for the next three to ve years into their rst position within a department or section. Two types of promotion are possible. Outstanding individual contribution to work groups and the company will be rewarded by a promotion to a higher rank in the hierarchy. Rank-based promotion signies an increase in social status, but has almost no impact on job duties and responsibilities. Functional promotions also include a change in occupational duties and leads to a higher status both in and outside the organization. Both types of promotion are coupled with wage increases. Initially, all those who enter the company with the same level of education are paid comparably and their
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seniority-based part of the wage will increase at the same speed throughout their whole career. Other wage parts are related to individual performance and are reected in wage increases related to rank-based and functional promotions. Individual commitment and contribution to the companys success is also rewarded through a bonus system. If the overall performance of the company and the economy are good, bonuses are paid twice a year amounting up to 512 times monthly salaries, otherwise no bonuses are being paid at all. Thus, the employment and wage system offers Japanese enterprises the possibility to adjust easily rather the price and utilization of labor than adjusting the number of their labor force. For the Japanese corporations, the nancial merits of this system can be summarized by the full return of investment from corporate training, the decrease of cost caused by recruiting, uctuation and termination, efciency in information and rapid acceptance of technological change among employees. The latter benet from long-term employment, increasing wages based on work group achievements and seniority, and prospects of an attractive internal career (Aoki, 1988; Blumenthal, 1993; Boyer & Juillard, 1995; CutcherGershenfeld et al., 1998; Hanada, 1994, 1995). The following graph and table summarize the traditional organization of new product development and illustrates organizational learning aspects at Toyota from an action learning perspective. During the 1960s and 1970s this type of organization proved to be very efcient. As a part of the overall total production system, new product development proted from technical progress in exible automation, the close and just-in-time relationship
Figure 1. Learning in traditional NPD
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Table 1. Learning from an action learning perspective Learning for new product development About customers needs: On-the job training of engineers in marketing and sales Early focus groups and prototype testing instead of pure market research About product integration: Functional engineers working on different projects simultaneously sharing know-how and learning from doing their job in different project work groups Heavy-weight project managers dealing with one project across all functions of product development General managers of product planning making sure that learning about best practices are shared between projects Double-checking standard routines with production and marketing for optimizing design and integrating product Continuously across the organization: On-the-job training Facilitators at work to ensure action learning sets progress Willingness and ability to learn and to change incorporated into personal evaluation, promotional career and compensation systemIntense personal supervision and mentoring by experienced senior manager
Source: Own illustration.
Representations in action learning Increasing customers orientation: Learning-by-doing through structured jobrotation Communication and structured interaction with customers to test preferences and discover latent needs Fostering system thinking: Organization of heterogeneous work and project groups Questioning product design from all aspects from engineering to production to marketing Organization of quality circles including employees and workers with different backgrounds Structured reection of progress on product design across the overall production system
Delegating competence and facilitating problemsolving: Each project member and group facilitated by heavy-weight project manager with full competence and support of top management High levels of autonomy of project managers to come up with product solutions Full management support to implement new solutions if needed
with suppliers of new product parts and Toyotas total quality management. The positive economic climate of rapid catch-up growth also had a positive impact on car sales. In 1972, Toyotas domestic production totaled over 10 million vehicles with cumulative exports almost reaching 4.5 million units, largely due to delivering new models at high quality and competitive prices every two to three years. However, the rapid growth had major effects on the efciency of new product development. The growing number of engineers resulted in a higher specialization and new functional divisions making project management and product integration even more complex. Functional division managers found it difcult to manage their engineers often working on more than ten projects simultaneously exercising only a single task in each project. Engineers were also inclined to add highly specialized features to every single product resulting in fat designs with lots of proprietary components
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and limited reusability of parts and technology for other models. This was commonly supported by the project managers, who wanted to produce distinctive models that stood out in the market beating competitors models by design and function (Liker, 2005; Morgan & Liker, 2006). The increasing degree of specialization jeopardized not only the understanding of the entire product concept for integration, but the traditional patterns of work group based job rotation and functional promotion. Project managers complained about increasing work load consumed only by integrating all functions into their projects. By 1991, a project manager had to coordinate people in 48 departments in 12 divisions withstanding double-checking with production and marketing (Becker, 2006; Nobeoka, 2006). Furthermore, with the increasing complexity of project management, general managers hardly supervised project managers on engineering details, but entrusted them with high degrees of autonomy. Slowly, sharing of knowledge, basic components and technologies between projects diminished. Until the late 1980s, the increasing shortfalls and cost in new product development were not seen as a major problem. Sales of new car models usually surpassed initial sales volume targets, largely driven by Toyotas innovative power and internationalization. Growing market share and internationalization created nearly 7000 new jobs in new product development feeding the traditional Toyota production system. Developers and designers, who literally made themselves redundant by optimizing the ow of production were easily awarded new tasks and positions. Promotional wage gains were topped by annual bonuses amounting up to 8-10 times the monthly base salary. Although engineers in product development were expected to put in up to 20% of unpaid overtime when work was expanding and deadlines had to be met, they were fully committed and satised with work (Nobeoka, 2006). The situation changed signicantly when the Japanese bubble economy burst in early 1990 leaving Toyota with dramatic slumps in domestic sales, pressures on exports due to the appreciation of the yen against the dollar and increasing cost competitiveness from overseas manufacturers amid mergers and acquisitions. When sales dropped dramatically and prospects of a quick recovery deteriorated, the slowing productivity in new product development suddenly became a burden to future competitiveness. Toyota started to adjust labor cost by cutting bonuses, limiting promotions and transferring people to lesser paid sales oriented positions. New hiring was postponed or substituted by hiring temporary workers who were not granted lifetime employment. The reduction of subcontractors completed the attempts to cut cost. However, in companies with a seniority system, downsizing by a reduction of new hires is still costly as older, experienced workers are relatively overpaid in relation to productivity. Toyotas creative reconstruction of new product development In 1990, Toyota launched an internal initiative called the Future Project 21 (FP21) to tackle the persistent problems. The ultimate goal of FP21 was to identify problems of the existing product development organization and to make it t for the twenty-rst
36 B. Fuchs century (Nobeoka, 1995). Toyota wanted to have a clear understanding which traditional skills, processes and routines would be further needed and which new ones had to be built to maintain a competitive advantage in product development. Toyotas goal was to maintain the traditional high frequency of individually designed new car models with high quality, but at improved protability. Pursuant to lifetime employment, reduction of the work force was not seen as a solution motivating employees to engage in the project. Yoshiro Kinbara, an executive vice president in charge of product and technology development, was appointed to lead the FP21 initiative that was scheduled for a year. Besides top management support, Kinbara had full authority to recruit resources from different hierarchies, functions and departments. The Nomura Research Institute was hired as an external consultant. In the beginning, the work of the FP21 initiative leveraged Toyotas existing sevenstep problem-solving process as illustrated in Figure 2 (Nobeoka, 1995; Liker, 2005). Special work groups were asked to identify the biggest obstacles when developing new products across all functions. They were also asked to analyze and record in detail which routines, parts and components could be used without limitation by all product development projects and which ones they thought were unique to a specic car model. Based on their results, all current development projects had to be categorized into groups with similar engineering requirements. Findings were forwarded to existing quality circles for further discussion and evaluation. FP21 work groups were then requested to describe precisely the areas and problems investigated and propose solutions. In the case of missing data or open questions, work groups were extended either horizontally or vertically to gather information from separate
Figure 2. Practical problem-solving in FP21
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functional divisions or higher hierarchies. Final results of project work groups and quality circles were eventually consolidated, reported and discussed with top management by FP21 project leadership. Figure 2 summarizes the seven-step practical problem-solving process and core results from FP21 during the process. FP21 project managers eventually delivered two root causes for declining productivity in new product development. First, they named the inefciency of increased specialization hindering communication and exchange of information across functions and projects. Second, they argued that development cost were too high caused by too many proprietary car features and components. A new organizational blueprint was presented to tackle the problems. In 1992, Toyota restructured new product development into 4 development centers: Center 1 was responsible for rear-wheel-drive platforms focusing on luxury and high-quality vehicles, Center 2 for front-wheel drive platforms and vehicles in the lower price segments, and Center 3 for utility and van vehicle platforms for recreational cars. Center 4 was installed to make better use of technology research and development. All engineers dealing with research and development on systemic components that could be applied to all car models in the near future, e.g., air conditioning, supporting electronics, audio systems and new engines, were transferred from the technical center in Higashi-Fuji to new product development (Nobeoka, 2006). Research and development bases in North America, Europe, Australia and Asia were continually established to take platforms from Japanese centers and to adapt it to local consumer preferences. The central product planning division was dissolved in three functional planning divisions at each vehicle development center. Functional managers of this division were made responsible to plan, manage and control tightly development cost and quantitative performance targets. Project managers are still responsible for their overall development projects, but have to report regularly to their functional managers. The role of the project manager also had to change as Toyota acknowledged new skills necessary. In the past crucial skills for project management could be gained largely through experience. But with the emergence of new technologies, e.g., CAD/CAM systems, younger employees were sometimes more qualied for project management. By organizing project managers in a functional division, senior staff can supervise junior project managers avoiding conicts of authority linked to seniority. Functional managers report the general manager of the center on the projects progress and performance. General managers meet on a weekly basis to discuss matters of product development and to make sure, that the knowledge, skills, experiences and progress gained in single projects are transferred across centers. The following Figure 3 shows the new organization of new product development. Within four years, the restructuring led to an average of 30% cost reduction per development project, a decrease of prototypes by an average of 40% and shortening of average lead time to about 18 months putting Toyota back into worldwide lead. Increase in component and platform sharing, intensive coordination between less specialized departments and functions, and improved communication and interaction
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Figure 3. New product development organization after restructuring
within and across centers were identied as the major sources for improvement. The new organization also allowed Toyota to maintain traditional skills and routines such as the traditional employment system and routines of continuous improvements with the integration of new skills, for example the grouping and management of development based around technology platforms. Reconsidering the properties of action learning earlier introduced in relation to new product development, the actions and results of FP21 can be summarized as follows: Increasing customer orientation, communication and interaction: . Establishment of 4 centers with center heads being responsible for inter-project management and project managers ensuring intra-project communication. . Reduction of functional divisions and engineering specialization lessening workload for product integration. . Transfer of research personnel into new centers with basic R&D. Fostering system thinking: . Optimization of customer-oriented product integration across the whole value chain by sharing parts and components, improved interface management and bettering cost-performance ratio.
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. Re-enforcement of traditional performance evaluation and promotion schemes to reward individual employee efforts to improve the overall product development and production process. . Adaptation of wage system to better compensate for learning efforts, taking actions and implementation of necessary change. Facilitating problem-solving: . Migration of project managers into new center functional divisions allowing for coaching of junior project managers without conicts of seniority. . Maintenance of grown bundles of capabilities to continuously enhance skills and processes, such as corporate culture, kaizen and quality circles. . Retention of lifetime employment as an incentive for employees to commit to continuous and dynamic change in exchange for long-term job security. The fundamental reorganization initiated through FP21 did not have a negative effect on the number of total employees. On the contrary, before the reorganization in 1991, about 11.500 persons were employed. After restructuring, each of the four new centers employs up to 1900 engineers and handles between three to ve development projects. Additional staff is responsible for the planning and controlling and supporting design, research and quality. In 1993, the number of employees in the entire organization increased to nearly 12.000, partly due to developing the RAV4,4 hitting the Japanese market in 1994. The RAV4 was designed and produced by Center 3 in the new organization catering to consumers desiring a car with a large cargo room and higher visibility, along with the maneuverability and fuel economy of a smaller car. This differentiating new product concept formed the success of the new organization in integrating new customer needs with cost-efcient, timely individual product design and production. Job satisfaction and loyalty of employees could also be improved due to certain adaptations in the wage system. Before the reorganization, the wage system made 60% of wages dependant on efforts made monthly by each work team to reduce its work duration and number of workers, implying an inevitable self-intensication of individual workload. In 1993, this system was partly abolished and reformed. The portion of the wage accumulated by work groups efforts to reduce work duration was brought down to 20% of the monthly salary. Instead of being evaluated on a monthly basis by senior management, efforts to reduce work duration are henceforth negotiated between management and workers at the workshop level every six months based on workers own proposals (Shimizu, 1995, 1998).
Discussion and conclusions After the Second World War Toyota excelled in new product development based on a general positive economic climate and outstanding capabilities to continuously improve skills and work organization to deliver innovative cost-competitive
40 B. Fuchs cars for a broad range of consumers. In the early 1990s, caused by a sudden change in the economic climate, Toyota faced severe problems of overcapacities, overloaded product designs, high cost in development and increasing job dissatisfaction. It became obvious that the traditional production system had been supported easily with high growth rates enabling generous compensation to workers and suppliers for their personal contributions, but needed some adaptations. By a meticulous investigation into which individual and organization capabilities should be continued and which ones had to be discontinued, Toyota reorganized into an efcient multi-project center organization and regained its competitiveness in new product development (Nobeoka, 1995; Cusumano & Nobeoka, 1998). Having built the capability to learn from individual and work group efforts and to derive actions from learning, Toyota was able to turn around new product development in time, and to manage a necessary change in managerial mindsets without destroying valuable skills, making staff redundant and burdening the company with high cost of restructuring. To achieve these results, Toyota obviously made use of learning practices that are largely comprised and promoted by the concept of action learning. The following Table 2 captures some of these striking similarities in learning routines and organization. In conclusion, ndings from Toyota suggest that action learning strongly facilitates new product development for maintaining a competitive edge. It seems that by the implementation of a single action learning program new product development will result in increased customer orientation and a highly integrated new product experience. If carried out properly and supported by top management, reection and learning from such a single action learning program could trigger further learning initiatives aimed not only at delivering a single product solution, but to transform learning into new organizational routines. Action learning might also encourage broader job descriptions with positive effects on highly innovative companies. Technological change is constantly increasing, but job-holders are more and more specializing in narrow occupations and career paths. Grouping together jobs that can be performed by the same individuals would provide greater work variety, simplify the job evaluation process and enable companies to be more responsive to rapidly changing demands of stakeholders. Without the tradition and benets of Japanese internal labour markets and lifetime employment, action learning has the potential to motivate managers and individual employees to engage in long-term projects of learning and change with positive feedbacks to work satisfaction and personal commitment. Especially if combined with personal development, internal career paths, including horizontal promotions in combination with higher social status, and compensation, such as one-time bonuses for learning efforts, action learning will spur employees willingness to investigate and propose improvements, to consider the overall impacts of their actions to the company, to promote and support change. This might in the end, as the case of Toyota demonstrates, allow a company to continuously grow and evolve new capabilities and to avoid costly and demoralizing restructuring.

Table 2. Learning at Toyotas new product development versus action learning Aspired learning outcomes 1. Satisfying customer needs (individual/ organizational) Learning at Toyota new product development Lead-user, focus-group based needs research, testing and evaluation Standardized customer records fed from all interfacing company activities 7-step practical problem-solving practice to locate and tackle multivariant root causes Enhancing and leveraging explicit knowledge across functions through instructive training and extensive standard documentation Building and utilizing tacit knowledge through on-the-job training and job rotation Avoiding high levels of specialization Involving experts from manufacturing and marketing into development projects Delegation of overall competence to center heads and project managers Kaizen Efcient corporate bureaucracy updated by learning outcomes Vague job descriptions fostering contextual adoption of skills and competence Promotions linked to personal learning and transformation into new organization standards Performance evaluation and compensation connected with learning efforts and results Commitment to change in exchange for lifetime employment stability Manager mindset promoting learning and change Implementation of FP21 Action learning initiatives
41
Customer-oriented search for solving problems; exploring customer needs from different angles and disciplines (system beta) 3-step practical problem-solving practice investigating and delivering creative new solutions Enhancing communication and interaction of persons from different functions, positions and disciplines Equipped with resources, competence and responsibility to produce solution
2. Integrated product experience (individual/ organizational)
3. Continuous improvements and dynamic change(individual/ organizational)
Engrained reection on learning progress (system gamma) as a basis for transforming learning into new organizational routines Roles and competence of set members are dened during the process and utilized as needed Engagement in action learning triggering personal promotion and higher social status Top management support for problem-solving and resulting actions
Source: Own compilation.
42 B. Fuchs Acknowledgements Thanks are due to Otmar Donnenberg for reviewing earlier versions of this article; Masanori Hanada, Akinori Isogai, Koichi Koizumi, Kiyohiko Nishimura, Toshio Yamada and Toru Yoshimura for discussions, interviews, internal reports and material from Toyota.
Notes 1. Insights into Toyota were gained through on-site research at Toyota, organizational material, semi-structured interviews with engineers, workers and managers and discussions with researchers during the period of 1993 to 1997 sponsored partly by a Ph.D. scholarship from the Austrian government and partly by a foreign research fellowship from the University of Tokyo under the supervision of Professor K. Nishimura. 2. The term heavyweight project manager as a translation from the Japanese word shusa was coined by Takahiro Fujimoto, who wanted to pinpoint the broad array of competence, ability and responsibility of Toyotas chief engineers acting as project managers. 3. Although the formal educational system was structurally adapted to the American system after the Second World War, the contents and main educational goals remained strongly inuenced by pre-war social norms and values. 4. RAV4 stands for Recreational Active Vehicle with 4-Wheel Drive.
References
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Dilworth, R. L. & Wallis, V. J. (2003) Action learning: images and pathways (Malabar, Krieger Publishing Company). Dixon, N. (1994) The organizational learning cycle. How we can learn collectively (London, McGraw-Hill). Donnenberg, O. & De Loo, I. (2004) Facilitating organizational development trough action learningsome practical and theoretical considerations, Action Learning: Research and Practice, 1(2), 167 184. Fujimoto, T. (1999) The evolution of a manufacturing system at Toyota (New York, Oxford University Press). Gupta, A. K. & Govindarajan, V. (2000) Knowledge managements social dimension: lessons from Nucor Steel, Sloan Management Review, 42(1), 71 81. Hanada, M. (1994) Modalites de la xation des salaires au Japon et en France: Etude du bulletin de paye de Nissan et Peugeot [Wage determination in Japan and France. An analysis of pay slips at Nissan and Peugeot], Japan in extenso, 31, n8 double, mars avril. Hanada, M. (1995) Roshi dakyo to chingin ketteinihon no chinrodo kankei no bunseki kijun to sono shatei [Social compromise of labour and capitalanalytical standards for Japanese work relations and their effects]. Working paper, Kumamoto Gakuen University. Herstatt, C. & Von Hippel, E. (1992) From experience: developing new product concepts via the lead user method: a case study in low tech eld, Journal of Product Innovation Management, 9(3), 213 221. Hino, S. (2006) Inside the mind of Toyota: management principles for enduring growth (New York, Productivity Press). Liker, J. (2005) The Toyota way (New York, McGraw Hill). Marquardt, M. (1999) Action learning in action (Palo Alto, CA, Davies-Black). Morgan, J. M. & Liker, J. K. (2006) Toyota product development system: integrating people, process, and technology (New York, Productivity Press). Nobeoka, K. (1995) Reorganizing for multi-project management: Toyotas new structure of product development centers. Working paper, Research Institute for Economics and Business Administration Kobe University. Nobeoka, K. (2006) Reorientation in product development for multi-project management: the Toyota case, in: C. Herstatt, C. Stockstrom, H. Tschirky & A. Nagahira (Eds) Management of technology and innovation in Japan (Heidelberg, Springer). Nonaka, I. & Takeuchi, H. (1995) The knowledge-creating company. How Japanese companies create the dynamics of innovation (Oxford, Oxford University Press). Ohno, T. (1993) Das Toyota Produktionssystem [The Toyota production system] (Frankfurt, Campus). Revans, R. (1982) The origins and growth of action learning (Lund, Chartwell-Bratt). Senge, P. M. (1990) The fth discipline. The art and practice of the learning organization (London, Random House). Shimizu, K. (1995) Toyota Jidosha ni okeru rodo no ningenka (I, II) [Humanizing work at car manufacturer Toyota]. Economic paper series, University Okayama, Vol. 27, No. 1 and No. 2. Shimizu, K. (1998) Is Toyota abandoning Toyotism? Debate Michel FreyssenetKoichi Shimizu, La Lettre du GERPISA (Groupe dEtudes et de Recherches Permanent sur lIndustrie et les Salaries de lAutomobile) [Research Letter of the Permanent Group for the Study of the Automobile Industry and its Employees]. 119, January, 4 6. Shingo Shigeo (1989) A study of the Toyota production system from an industrial engineering viewpoint (New York, Productivity Press). Womack, P. & Jones, D. T. (2003) Lean thinking: banish waste and create wealth in your corporation (New York, Free Press). Yamada, T. (2000) Japanese capitalism and the companyist compromise, in: R. Boyer (Ed.) Japanese capitalism in crisis : a regulationist interpretation (New York, Routledge).
Reorganizing for Multi-Project Management: Toyotas New Structure of Product Development Centers
April 4, 1995
Kentaro Nobeoka Research Institute for Economics and Business Administration Kobe University
(Edited by Michael Cusumano, MIT)
1.
Introduction
The purpose of this paper is to discuss an emerging organizational structure for new product development at large Japanese automobile firms. This study
specifically focuses on describing the objectives and outcomes of changes in product development organization implemented at Toyota in 1992 and 1993. This
reorganization is the most fundamental change in product development organization that Toyota has implemented 1965. since The it new established the is Shusa aimed (product at manager)
organization management. are grouped
around
organization
multi-project
It has three vehicle development centers in which multiple projects together, in contrast to either traditional single-project-oriented or
function-oriented
organizations.
Toyota has often been considered as a leader in adopting new organizational structures and managerial processes in both manufacturing and product development. For example, the Toyota production system, symbolized by its JIT and Kanban systems, has been targeted as one of the best practices in manufacturing by many firms, not only in automobiles but also in other industries. With respect to product development
organization, Toyota led in establishing a project-based management system, which aimed at coordinating activities in different functional areas into a well-integrated new product. featuring project Clark and Fujimoto (1991) have described this as an organization product managers, who facilitate such An to this as quick completion of a
"heavyweight" by integrating
different and
functions
design research as
engineering, project, "lean the
manufacturing International
engineering, Motor Vehicle
marketing. referred
MIT
Program,
approach
product
development" (Womack et al., 1990). In addition to the efficient development of individual products, many studies have shown that Toyota and other Japanese leading automobile firms have been
developing new products to add new product lines or replace existing products more frequently than U.S. or European competitors (Abegglen and Stalk, 1985; Womack et
al., 1990).
Their capability in developing individual products efficiently through a organization helped implement the strategy of prolific product
project-oriented introductions.
This frequency has been overwhelming to some Western firms and has
been considered as one of the sources of Japanese firms competitive advantages in world markets (Fujimoto and Sheriff, 1989, Nobeoka and Cusumano, 1994). In the past
15 years, for example, the number of passenger vehicle lines including sports utility models at Toyota has more than doubled, rising from 8 to 18. Toyota also has
maintained its four-year product life cycles for most of its product lines, which is much shorter than those in the Western firms. In recent years, however, all Japanese manufacturers, including Toyota, have become more concerned with efficiency in developing new products. In most of their
major markets, demand has slowed or even declined, while the cost competitiveness of Japanese firms has considerably decreased because of the appreciation of the yen and improvements at Western competitors. They have been facing profitability problems
that are related at least in part to the high costs of developing and manufacturing so many new products or product variations. Therefore, Japanese firms are trying to
develop new products more efficiently while maintaining both a high frequency of new product introductions and high design quality in individual projects. In the highly competitive environment of the 1990s and the foreseeable future, therefore, successful companies need to optimize not just one project at a time but a portfolio of projects and technologies. In order to achieve economies of scale and
scope in product development as well as manufacturing, it is common for firms to leverage their financial and engineering resource investments by reusing existing
technologies and designs in multiple projects.
Firms also have to consider how to
share many components among multiple products without sacrificing an individual product's design quality and distinctiveness. A key challenge to managers of product
development is to share technology across multiple product lines and across multiple generations of products without overly compromising design quality and
competitiveness.
A project management system that assigns too much autonomy to each product manager may concentrate too heavily on developing multiple new products through relatively autonomous project-oriented organizations. This system tends to result in
the development of many proprietary components for each project, and may require excessive financial and engineering resources. Therefore, automobile manufacturers
may need a product development organization that better balances individual project performance approach, with inter-project the LH coordination. and Neon For example, might Chrysler's be project-team for
used
for
projects,
only
appropriate
optimizing the development of one product at a time.
In contrast, Toyota managers
have considered that a project-team approach is not an efficient way for large firms to develop many products concurrently that could share similar technologies and
components. Firms that try to optimize the management of multiple projects simultaneously need an organization that is suitable for coordinating inter-project interfaces and
interdependencies.
Because most product-management research has focused on the
management of single projects, this is not helpful for managers and researchers to understand the complexity of coordinating multiple projects. traditional appropriate function-oriented, to manage rather than It may seem that a organization this type is of
project-oriented,
inter-project
interdependencies.
However,
structure is weak at cross-functional integration.
Functional organizations also lack a
mechanism to ensure that individual products retain distinctive features and a high degree of what has been called product integrity. aim at achieving both cross-functional coordination Therefore, organizations should and inter-project coordination This
simultaneously through the way they organize and control multiple projects. goal cannot be achieved by either traditional project-oriented or
function-oriented
organizations.
The inter-project interdependencies must be coordinated within the To share components while
context of a specific project as an integrated system.
retaining the distinctiveness of individual products, firms also need organizational
structures projects.
and
processes
that
enable
system-level
coordination
across
multiple
Toyota's reorganization into product development centers represents one way to manage multiple projects. By establishing three centers, each of which contains
several vehicle development projects, Toyota has improved inter-project coordination among technically related projects. At the same time, Toyota has strengthened the
authority of project managers over functional managers, and this has improved crossfunctional integration. These two goals may sound contradictory, but this paper This paper is based on interviews fifteen engineers, and three
focuses on how Toyota has solved this contradiction. with three general managers, four product
managers,
cost management planners between 1992 and 1994.
2.
Problems
of
the
Traditional
Shusa
Organization
at
Toyota
In 1953, Toyota assigned the first shusa, or product manager, to a new vehicle project (Ikari, 1985) 1 . When Toyota started product development for the 1955 Crown, At that time he was a shusa organization the was
Kenya Nakamura became the first shusa to head a project. member of the in Engineering February Management when Division. Toyota The
strengthened
1965
formally
established
Product
Planning Division to organize and support shusas. ten
At that time, there were already
shusas 2 , and each shusa had five or six staff members, which totaled about 50 The basic organizational structure with respect to the roles
members in the division.
of the Product Planning Division and shusas did not fundamentally change until 1992, when Toyota introduced the center organization. One of the minor changes before
that time was a change in the title name for a product manager from "shusa" to "chief Engineer" in 1989. In order to avoid any confusion, the rest of this paper will
I referred to this Ikari's book with respect to the information regarding the early period of the Shusa organization in the 1950's and 1960's. 2 Each of the ten shusas were responsible for Crown, Mark II, Publica, Century, Celica/Carina, Toyota 2000 GT, Corona, Corolla/Sprinter, Toyoace, Miniace.
consistently use the new term, chief engineer, to refer to this position, rather than shusa or product manager. After having maintained the same basic structure for more than two decades, in 1990, Toyota decided to evaluate its entire product and technology development
organization and to change it if necessary, so that the organization would fit the competitive environment at the end of the twentieth century. Toyota launched an
initiative, called the Future Project 21 (FP21), to study any problems in its product development organizational structure and processes. The leader of the project was
Yoshiro Kinbara, an executive vice president in charge of product and technology development. project. A manager at Toyota explained that no specific threats triggered this
At that time, Toyota was actually doing better than most of its competitors.
People at Toyota, however, recognized that organizations sometimes needed to be reviewed and overhauled to continue to be competitive in a changing environment. A consulting firm 3 was hired for this project evaluated the organization performance at
Toyota as a starting point of the FP21. Soon after the FP21 started its studies, the team identified two important problems. These problems led Toyota to conclude that it would need a major First, there was an organizational problem. development organization had A primary point was that less efficient in
reorganization. Toyotas
product
become
communication and had come to need more coordination tasks than before to manage new product development. automobile industry started Second, the competitive environment for the Japanese changing drastically around 1990, which seemed to
require Toyota to change its product development strategy and organization.
Due to
various factors such as the appreciation of the yen, the Japanese auto industry faced decreasing competitive advantages against most competitors in the world. The
following sections discuss these two problems in more detail.

3
Toyota chose the Nomura Research Institute, a Japanese consulting firm rather than prestigious U.S. based firms such as McKinsey. A person at Toyota mentioned three reasons for this decision: (1) A Japanese consulting firm may know more about Japanese firms. (2) Toyota wanted plans for implementations, rather than grand strategies. And (3) a Japanese consulting firm seemed likely to provide more value per cost than a U.S. firm.
Organizational Figure reorganization
Problems 1 in shows 1992. Toyota's There product were, at development that time, as organization many as before its
sixteen
design
engineering functional divisions, and each had a functional manager.
There were
about fifteen projects proceeding concurrently, even though Figure 1, a simplified model, depicts only nine projects. Each project had a chief engineer, who was located
in the Product Planning Division under a general manager. The product development organization was actually a huge matrix organization rather than a project-based organization. Chief engineers and general managers in
the Product Planning Division did not directly oversee the engineering divisions in this organization structure. However, chief engineers at Toyota were supposed to
have considerable authority over the entire product development process, including different engineering stages, manufacturing, and product concept creation.
According to the definition by Clark and Fujimoto (1991), chief engineers at Toyota were supposed to be typical examples of heavyweight product managers. However, in reality, the product development organization at Toyota had
become much larger than before, and chief engineers started to find it difficult to control and integrate different functional divisions when making a new product. As
the number of product development projects increased, the number of engineers also increased. had At the same time, the degree of specialization in the engineering divisions narrower, reflecting the increasing number of different engineering
become
divisions.
As of December 1991, there were about 7000 people in the sixteen product engineering divisions. They were working, on average, on fifteen
development
concurrent projects.
In addition, Toyota had a Research and Advanced Development This had about 2000 additional
Group located at the Higashi-Fuji Technical Center. people 4 .
7000 people in the sixteen engineering divisions and 2000 people in the RAD group added up to 9000. There were, in total, about 11,500 people working on product development. The rest of the
people were engaged in supporting activities such as patent management, certification process management, CAD system development, and prototype development.
internal data on the number of frequent participants in meetings a product manager
divisions to manage new product development. This estimate comes from Toyota's
Figure 1
In 1991, a chief engineer had to coordinate people in 48 departments in 12
Product Planning Div.
Toyota's Product Development Organization in 1991
General Manager Chief Engineer Functional Manager Research & Advanced Development
Design Div. Body Engineering Div. 1 Body Engineering Div. 2 Interior Engineering Div. Chassis Engineering Div. 1 Chassis Engineering Div. 2 Power Train Engineering Div. 1 Power Train Engineering Div. 2 Power Train Engineering Div. 3 Power Train Engineering Div. 4 Electronics Engineering Div. 1 Electronics Engineering Div. 2 Product Evaluation & Engineering Div. Vehicle Evaluation & Advanced Engineering Div. 1 Vehicle Evaluation & Advanced Engineering Div. 2 Vehicle Evaluation & Advanced Engineering Div. 3
Higashi-Fuji Technical Center
held5.
In 1976, there were only 5000 people in the entire product development A chief engineer had to coordinate only 23 departments in six divisions. a chief engineer generally needed to talk with only six division
organization. At that time,
managers to integrate all the design engineering functions.
This change indicated
that, during the fifteen years, coordination tasks had become much more complicated for chief engineers.
In addition to this added complexity, there was another problem that made it difficult for some chief engineers to manage a new product development project. Some relatively junior chief engineers started to complain that they did not always have enough authority over senior functional managers. Originally, only a limited
number of charismatic senior managers tended to rise to the position of chief engineer. Toyota people often considered them as "gods" within their projects.
However, in recent years, Toyota has assigned relatively junior people to the position of chief engineer. There are two reasons for this change. First, the number of chief Second, Toyota
engineers required to cover all new vehicle projects had increased.
recognized that people needed particular talents to be excellent chief engineers, and their seniority was not as important as their ability. Functional managers also found it difficult to spend sufficient time on
managing engineering details of all the vehicle projects, because most managers had to oversee about fifteen different projects 6 . They did not have enough time to oversee Due to
complicated interfaces and interdependencies between these projects either.
the large number of functional divisions and vehicle projects, each chief engineer was able to arrange for regular meetings with all the relevant functional managers only about once every two months.
Even though there were sixteen design engineering divisions, a chief engineer for a particular project did not necessarily need to manage all of these. These data were based on Toyota's internal measurements. The Company did not explain in detail its methodology for the measurements. 6 There were a few exceptions. For example, as of 1991, there were already two separate body engineering divisions, each of which was responsible for front-wheel-drive and rear-wheel-drive vehicles, respectively. Therefore, each functional manager was in charge of about a half of the entire vehicle projects.
There was a problem also at the engineering level.
Because of their narrow For
specialization, engineers did not have a system view of the entire product.
example, some engineers only knew about the inner body of doors and did not know much about the outer body because interior engineering and body engineering
divisions were separate.
This kind of excessively narrow specialization had a negative In addition, Toyota realized
impact on the development of a well-integrated product.
that the narrow specialization caused another problem for engineers when they were promoted to become a manager in charge of a larger engineering task such as the entire body. It was difficult to train general engineering managers in this
organizational
structure.
Engineers also found it difficult to have a strong sense of commitment to a specific vehicle development. number of projects, each Because of the narrow specialization and the large frequently had to transfer between unrelated
engineer
vehicle projects. different projects.
This may sound useful to transfer technical knowhow between In reality, however, despite the frequent transfer of engineers, Nor was this
Toyota found that it could not transfer system knowledge in this way. structure particularly appropriate for inter-project knowledge transfer.
Toyota's rapid growth in size partially caused these organizational problems. One way to increase the chief engineer's authority and to eliminate problems caused by narrow specialization is to create a pure project team organization, such as
Chrysler adopted for its Neon project.
In this organization, almost all engineers However, Toyota did not
exclusively work for a single project for its entire duration. consider the project team organization efficient.
This type of organization can work
well for firms with a small number of projects and little technical interdependency between multiple products concurrently being developed. Because Toyota has many
projects and a limited number of engineers, it cannot assign engineers to a specific project for the entire duration of the project. The peak period for design engineering
work for engineers in a specific project lasts only about one and half or two years out of a four-year project. Therefore, when a project task is outside of the peak,
engineers
should
be
transferred
to
other
projects
to
be
utilized
efficiently.
In
addition, a change in the competitive environment discussed in the next section also made the project team approach inappropriate. In the new environment, effective
inter-project technology sharing has become more important. Even the organization at Toyota prior to 1991 had problems with respect to inter-project coordination. One of the policies of Toyota's chief engineer organization
was to encourage the autonomy of each chief engineer with respect to his own vehicle project. General managers in the Product Planning Division above chief
engineers, therefore, did not supervise chief engineers in the details of individual projects. In addition, the number of vehicle projects was too large for managers to
deal effectively with multi-project management issues such as resource allocation, technology transfer, and component sharing across all projects. Finally, there was a problem regarding coordination with the Research and Advanced Development (RAD) Group located at the Higashi-Fuji Technical Center 7 . The center was maintained relatively independent of specific vehicle development However, both organizational
projects, so that it could focus on research and advanced engineering. vehicle structure. projects and the RAD group were dissatisfied with this
Engineers for specific vehicle projects did not think that the RAD group On the other hand,
developed technologies that could be useful for their projects.
engineers in the RAD group felt frustrated because vehicle projects did not use technologies that they developed. needed more In integration Toyota reached a conclusion that these two groups
organizationally. product development organization had five problems.
summary,
Toyota's
These caused difficulties in both project integration and inter-project coordination: 1. There were too of many functional engineering divisions with too narrow specialization engineers.
Because Research & Advanced Development Group was mainly located in the Higashi-Fuji Technical Center, these two names are often interchangeably used. Higashi-Fuji is located about 150 miles east of Toyota's headquarters, which contains the primary functions for product development. This paper uses a shorter name, RAD group, which is original here and is not used at Toyota.
2. There were too many vehicle projects for each functional manager to manage the engineering details of each project as well as inter-project coordination. 3. It had become much more complicated and difficult for chief engineers to oversee all the engineering functions. 4. The chief engineer organization was not appropriate for inter-project coordination. 5. The RAD group and vehicle projects were not sufficiently coordinated.
Change in the Competitive Environment The competitive environment surrounding Japanese automobile firms started
changing around 1991.
There were two interrelated issues.
First, rapid growth in The aggressive product
production levels at the Japanese firms virtually ended.
strategy of Japanese automobile firms in the 1980s, such as frequent new product introductions and replacements, had been partially based on their assumption of
continuous rapid growth.
The new environment seemed to require some changes in Second, the importance of cost In
this strategy, as well as in company organizations.
reduction became even more critical for international competition than before.
addition to the appreciation of the yen, Japanese advantages in development and manufacturing productivity have been diminishing. Both factors have had a strong
negative impact on the cost advantages they had been enjoying. Because of these changes, the traditional chief engineer system, which
primarily focused on building the best individual products one at a time, needed to be revised. Chief engineers always thought about the success of only their own projects.
A general manager who used to be a chief engineer said, "Each product manager wanted to increase sales of his own project even by developing many new proprietary components and by expanding the target customer segments of his project into other product lines within Toyota." production volume was He explained that, during the period when Toyota's rapidly, these characteristics of Toyota's chief
growing
engineer system worked well for the Company.
Because total production was growing The
rapidly, cannibalization of individual product lines was not a major problem.
market in each product segment also expanded, and this growth made it possible for each project to expand its target market. In addition, Toyota was able to sell more of most new products than it had expected. Therefore, high development and production costs caused by many new A manager in charge of
proprietary components was not much of a problem either.
cost management admitted that, "Prior to 1991, few new products met an original target cost when it was introduced to the market. However, the sales volume for each The large sales volume lowered In
new product was usually larger than its original plan.
the actual production cost compared to its original plan through scale economies.
the end, a new product usually reached the production cost that had been originally planned, Because when of a the faster entire production of during its life cycle was fully considered." plans,
depreciation
manufacturing
equipment
than
original
production costs also appeared to be lower than expected.
Given this common pattern,
a chief engineer primarily tried to develop a new product that would sell well, rather than a product that would meet a conservative cost target. However, starting in 1990, Toyota's production volume stopped growing and even started declining, as shown in Figure 2. started decreasing. Under these Profit from each new product also Toyota needed a new product
circumstances,
development strategy and organization, particularly with respect to cost management. One particular aspect of the chief engineer system was considered inappropriate in this new environment: Toyota The management that of each individual project was too more
independent. coordination.
concluded
multiple
related
projects
needed
First, in the stagnant market, new products should be more carefully positioned to each other so that any cannibalization would not occur. Within a limited total sales
volume, the expansion strategy of one product line would easily cannibalize some portion of sales of neighboring products within Toyota. production cost, Toyota needed to increase in Second, in order to reduce of components and
commonalty
technologies among multiple new products.
Sales increase, which used to help cover
shortage in cost reduction efforts, could not be expected anymore.
Under the Toyota's
chief engineer system, there was a tendency that each project overly developed its proprietary components. organization at Toyota. three products that are There are many symptoms of the old product strategy and For example, there are now three distinctive platforms for similar in size and technology: the Corona/Carina, the
Celica/Carina ED, and the Camry. an ideal platform for each product. Figure 2 Production Units at Toyota
Annual Production (000) 4000 3500 3000 2500 2000 1500 1000 500 0 79 80 81 82
A chief engineer for each project wanted to develop
83
84
85
86
87
88
89
90
91
92
93
Source: Automotive Yearbook 1994
In
view
of
these
organizational
problems
and
changes
in
the
competitive
environmental, Toyota decided to change its product development organization rather extensively. A new organization needed both to strengthen the integration
mechanisms for engineers in different functions so that they could create a wellintegrated new product, as well as to facilitate coordination among different projects so that technologies and components can be effectively transferred and shared. These
two objectives are in a sense contradictory, because Toyota needed both to strengthen its project orientation as opposed to function orientation, and to enhance inter-project coordination. a strong For example, a project-oriented team approach might be appropriate for project On orientation, the other usage of but hand, might be inappropriate the for inter-project orientation multiple to
coordination. enhance the
strengthening
functional
efficient
specific
components
throughout
vehicle
projects
would
be
totally
unsuitable
to
enhance
an
individual
products
level
of
integration or coherence. these two alternatives.
Therefore, these two problems cannot be solved simply by Thus, Toyota reached a conclusion that it would fundamentally
change its organizational structure for product development.
3.
Establishment
of
Development
Centers
Toyota made two major changes in its product development organization.
These
changes did not reduce the total number of people working on product development at Toyota. At the end of 1991 before the reorganization, there were about 11,500 people Rather the
in product development, and the number rose to about 12000 in 1993.
changes specifically targeted the problems discussed in the previous section. First, in 1992, Toyota divided all of its new product development projects into three centers as shown in Figure 3. platform design. Center 2 for The center grouping focuses on the similarity in
Center 1 is responsible for rear-wheel-drive platforms and vehicles, front-wheel-drive platforms and vehicles, and Center 3 for utility
vehicle/van platforms and vehicles.
Each center has between 1500 and 1900 people, Toyota had (luxury vs.
and works on about five different new vehicle projects simultaneously. considered other grouping schemes, such as by product segment
economical vs. sporty cars, or small vs. medium vs. large cars).
Toyota chose platform
design similarity because this would lead to the highest level of inter-project design interdependencies within a center. In addition, because new platform development
requires the most resources, sharing a platform design among multiple product lines would save the most in engineering investment and reduce production costs most effectively.
Figure 3
Toyota's Product Development Organization as of 1992
Power Train Engineering Div. 1-3
Body Engineering Div. 1-3
Design Div. 1-3
Vehicle Evaluation & Engineering Div. 1-3
Planning Div. 1-3
Chassis Engineering Div. 1-3
Center 1
Center 2
Center 3
Center Head
Chief Engineer
Functional Manager
Second, in 1993, Toyota created Center 4 to develop components and systems for all vehicle projects. It reorganized the Research and Advanced Development Group While the RAD Group
(the RAD Group), and assigned most people from this to Center 4.
Component & System Development
Center 4
used to work on research and advanced development rather independently, Center 4 closely supports vehicle development by providing specific projects with components and systems. In addition to engineers in the RAD group, Center 4 added engineers
working on some components such as electronics and new engines that did not need much daily coordination with a vehicle project. As discussed earlier, the center organization changes were supposed to improve both project integration and inter-project coordination. This section specifically
describes how some key aspects of the reorganization related to improvement in these two areas. Important features of this reorganization include:
(1) Reduction of the number of functional engineering divisions. (2) Reduction of the number of projects for each functional manager. (3) Changes in the roles of the center head for multiple vehicle projects. (4) Establishment of planning divisions in each center. (5) Adoption of a hierarchical organization for chief engineers in related projects. (6) The roles of Center 4.
(1)
Reduction
of
Functional
Engineering
Divisions
In order to decrease coordination tasks required for a well-integrated vehicle project, Toyota reduced the number of functional divisions for design engineering. The complexity raised by the large number of functional divisions made it difficult for chief engineers to manage vehicle projects. While the old organization had sixteen
different functional divisions, each new center has only six engineering divisions. This simplification into the center organization prompted two other changes. First, specialization in each functional engineering division widened. For example, as
shown in Figure 4, Toyota used to have two separate divisions for designing bodies and interior/exterior equipment: the Interior Engineering Division and the Body
Engineering Division.
In the new organization, the Interior Engineering Division Another example is the merger of two each of which had been separately
merged with the Body Engineering Division. different chassis engineering divisions,
responsible for suspension systems and brakes.
Each design engineering division
now has wider design responsibilities. the size of each functional
An important point is that this did not enlarge because each functional division is now
division,
responsible for only a limited number of projects within the center. Figure 4 Old and New Organizations for the Body Engineering Function
Old Organization (1991) Body Engineering Div. 1 (Front-wheel-drive) Body Engineering Div. 2 (Rear-wheel-drive) Interior Engineering Div.
Body Outer Parts Body Structure Body Outer Parts Body Structure Exhaust Parts Instrument Panel Seat Door, Ceiling, Flooring Interior Equipment Airconditioning Parts
New Center Organization (1992) Product Product Product Product A B C D
Body Engineering Div. 1 Center 1
Product Product Product Product
E F G H
Product Product Product Product
I J K L
Second, Toyota also reduced the number of functional divisions to be managed in a specific vehicle project through the usage of Center 4, the component and system development center. In order to simplify the work of the first three centers, Toyota
separated development of some components and systems that can be managed outside specific vehicle projects. Toyota considered three factors to decide whether particular First,
engineering functions should be in a vehicle project or the component center.
managers decided that components that need to be extensively tailored to each vehicle project should be managed within a project. Second, components that have to be
carefully coordinated with other parts of the vehicle design should also be developed within the project. On the other hand, some components with modular characteristics
can be developed separately from specific vehicle projects and still be inserted into a product design relatively easily. These may be developed in Center 4. These types of
components and systems tend to be shared by multiple vehicle projects, and it is not efficient to develop them in a specific project. needs much new technical knowledge a group should of be Third, component development that developed in Center working 4. Such together.
development
usually
requires
technical
specialists
These types of components also sometimes need a long time to develop and do not fit the time frame of specific vehicle projects. Following these guidelines, Toyota allocated the development of some
components or systems to Center 4.
For example, the upper-body design directly It should also be
visible to the customer has to be differentiated in each product.
extensively interdependent with other parts of the automobile design, such as the chassis and interior. Therefore, the upper-body design should be managed within the On the other hand,
project, and Toyota maintained this function within Centers 1-3.
components like batteries, audio systems, and air conditioners do not usually need to be tailored to each different vehicle project. Therefore, Toyota moved the Electronics
Engineering Divisions that developed these electronic components to Center 4. The example of the Electronics Engineering Divisions is actually more
complicated and indicates the extensive thought and analysis that Toyota put into
implementing
this
reorganization. of each
Toyota
carefully
examined so that
characteristics 1-3 can
and be
interdependencies
component
development,
Centers
simplified and yet contain all relevant components that need extensive coordination within each vehicle project. For example, among the electronics components, the
wire harness usually needs to be tailored to each vehicle project and has considerable interdependency with the body structure. Therefore, Toyota merged this engineering
function into the Body Engineering Divisions and kept wire harness development within Centers 1-3. Another example of eliminating activities from the vehicle project centers is the development of totally new engines, which is now located in Center 4. There are
many engineering tasks involved in new engine development that are not related to integration tasks within a particular vehicle project. In addition, the time frame of New engines
new engine development does not fit that of specific vehicle projects.
usually need about six to eight years to develop, which is longer than the 4-year lead time of the average new vehicle project. In this way, only component engineering that needs extensive project
integration remains in the vehicle project centers.
In the old organization, part of
the product development organization was responsible for both vehicle projects and most component development. and difficult to manage. In summary, by widening the engineering specialization within each division and by transferring some component development into Center 4, Toyota limited the number of functional divisions in Centers 1-3. In addition, because Toyota divided This mixture made the old organization complicated
each function only among three centers, the wider specialization did not require larger functional divisions.
(2)
Reduction
of
the
Number
of
Projects
for
Each
Functional
Manager
Each functional manager is responsible for a smaller number of projects in the new center organization. For example, managers in Center 1 can focus only on
vehicle projects with rear-wheel-drive platforms.
Because, in some functional areas,
there used to be too many projects for functional managers to oversee, it was difficult for them to pay careful attention to all the projects. For example, as shown in Figure
4, the functional manager for interior engineering was responsible for all different vehicle projects, which usually added up to about 15 concurrent projects. center organization, all functional managers are responsible for only In the five
about
product lines that are all technologically related to each other.
Each functional
manager now can spend sufficient time on the coordination with each chief engineer. In addition, this reduction of the management scope for each functional manager should result in more effective multi-project management in such areas as resource allocation and technology sharing. types of vehicle technologies. Each functional division can also focus on fewer
This focus may lead to more efficient development and
accumulation of technical knowledge as a division.
(3)
Roles
of
the
Center
Head
for
Multiple
Vehicle
Projects
Each head of Centers 1-3 officially supervises the entire product development operations, including both chief engineers and design engineering functions within the center. Equivalents to the center heads in the old organization were three deputy Each of
general managers above chief engineers in the Product Planning Division.
the deputy general managers was in charge of small cars, large cars, and trucks/vans. They reported to the general manager of the Product Planning Division. However,
they officially managed only chief engineers, not functional managers and engineers as seen earlier in Figure 1. These general managers above the chief engineers, In addition,
therefore, were not supposed to manage design engineering in detail.
there were also general managers above the functional managers, and it was not often clear which general managers those above chief engineers or those above
functional managers - had more authority.
In the center organization, each of the
three center heads manages engineering details for multiple vehicle projects within the center. From these perspectives, while the old organization was officially a matrix
organization both at the chief engineer level and at the general manager level, the new one is organized primarily around projects. Using their positions, the center heads are supposed to play two important roles that have to be deliberately balanced. integrate different functions. First, a center head helps each chief engineer
One of the key elements of the Toyota chief engineer However, as discussed in coordinating all the
system has been the strong leadership of a chief engineer. earlier, chief engineers recently found some difficulties
functional managers.
In the center organization, chief engineers can use the center Second, each center head is responsible A center head
head's support to manage different functions.
for the coordination of different vehicle projects within the center.
can now effectively implement this because he manages all the operations in the center. The separate planning division in each center, discussed next, also helps the
center head coordinate projects.
(4)
Establishment
of
Planning
Divisions
in
Each
Center
Each center has a planning division to support the management of each center. The Planning Division department, consists the of staff members and three and departments: the product the audit
administration department. centers.
cost
planning
department,
There are about 170 to 200 people in each planning division of the three The administration department is responsible for personnel management,
resource allocation, and the long-term product portfolio planning within each center. It also conducts an advanced concept study for individual projects, before these
projects become a formal project and a chief engineer is assigned. The equivalent of the Planning Divisions in the old organization was the
Product Planning Division.
One of the major structural differences is that chief Most members in For
engineers used to be located within the Product Planning Division.
the Product Planning Division directly worked for individual chief engineers.
example, most cost management people in the division used to be divided by vehicle project and primarily reported to individual chief engineers. On the other hand, in
the
new
organization,
cost
management
people
are
more
independent
of
chief
engineers and report to the planning division manager and the center head in each center, although they continue to work closely with chief managers. of the central concerns at Toyota, which is that each center This reflects one needs to reduce
development and product costs by efficiently leveraging resources and components across multiple projects. Each center also does long-term product portfolio planning. The management
scope used to be so large in the old organization that the project portfolio planning and resource allocation for each project were too complicated to be effectively
managed.
Now the Planning Division in each center can consider technology sharing
and resource allocation among multiple projects in the present and the future more carefully than before, by focusing on a limited number of closely related projects. This type of center-oriented management support may be critically important to the effective operation of the center organization.
(5)
Hierarchical
Organization
of
Chief
Engineers
Another feature in the center organization is the hierarchical chief engineer structure for managing product families as shown in Figure 5. helps strengthen the multi-project perspective of the center This structure also organization. For
example, there used to be two separate chief engineers for the LS 300 and the Supra projects. Now, there continue to be two chief engineers, but one of the two supervises The
both the LS 300 and the Supra projects, and primarily manages the LS 300 project.
other chief engineer manages the Supra project and reports to the chief engineer of the LS 300. Toyota also made the same kind of change for another pair of projects: the Although this type of structure is not adopted for all projects,
Tercel and the Starlet.
Toyota appears to be moving the organization in this direction.
Figure 5
Hierarchical Chief Engineer Organization for Multi-Project Management Discrete Chief Engineer Organization (Old) Hierarchical Chief Engineer Organization (New) Chief Engineer Chief Engineer Product A Product B Product C Product D
Chief Engineer Chief Engineer Chief Engineer Chief Engineer
Product A Product B Product C Product D
Chief Engineer Chief Engineer
Each of these pairs of projects share almost identical platform and drive train designs, even though these two projects target completely different customer
segments and have separate product concepts. personal car and the Supra is a sports car.
For example, the LS 300 is a luxury Therefore, it is important to manage the
two projects separately, so that each project develops a product that fits with its own customer needs. A planning division manger at Toyota says that it is difficult for a
single chief engineer to develop two products with widely separate concepts and to give the same level of commitment to each of these. However, at the same time,
because these two projects should share the same platform design, they need extensive coordination. characteristics hierarchical Therefore, and the projects in have to achieve differentiation at to the pursue same these in time. two product The goals
integration engineer
product is
development one way
chief
organization
simultaneously.
(6) Roles of Center 4 As explained earlier, Toyota based Center 4 primarily on the RAD group in the old organization. As shown in Figure 6, the basic structure of the organization and
technical areas has not significantly changed. new organizations include vehicle (body and
Technical areas of both the old and chassis), engine and drive train,
electronics, and materials.
The most important aspect of the change was that, while
Center 4 focuses on developing components and systems for vehicle projects, the RAD Group was relatively research-oriented. The relationship between the RAD group and Center 4 and is
vehicle projects was that between upstream and downstream organizations. has virtually become a part of the vehicle development organization,
responsible for system components that could be better developed outside specific vehicle projects.
The RAD group had about 2000 people, while there are about 4000 in Center 4. As discussed earlier, some components or systems like electronics and new engines can be developed more appropriately outside specific vehicle projects. now focus on achieving project integrity. One of the most significant improvements regarding Center 4 was the Centers 1-3 can
introduction of a new organizational mechanism, called the cross-area system project. Development technical of some To new develop systems such need new new technical Toyota knowledge formed a in multiple teams
areas.
systems,
project
containing engineers and researchers from multiple technical areas.
These projects
are temporarily located in the Planning Division in Center 4, and their leaders are selected and assigned by the head of Center 4. In the old RAD Group, different
technical areas usually worked separately and their coordination mechanism was not strong enough to deal with this type of project. For example, Toyota recently developed a new low-cost Anti-lock Brake System (ABS). Center 4 was responsible for developing of the new ABS. In this case, similar
systems could be used for all vehicle projects.
It is not efficient if either an individual Its and
vehicle project or a product development center develops this type of new system. development materials. needed new technologies in the areas of chassis, electronics,
Toyota thus formed a project team including people from these technical A manager at Toyota says that the cross-area system
areas to develop the new ABS.
project significantly improved the efficiency of developing this type of new system component. Figure 6 Center 4 and its Original Organization
Old Organization: Research & Advanced Development Group (RAD group)
Administration Div. Vehicle Research & Advanced Eng. Div. Senior Managing Director in change of Reseach & Advanced Development Engine Research & Advanced Eng. Div. R & D Div. I (Engine) R & D Div. II (Materials) R & D Div. III (Electronics)
New Organization: Center 4

Planning Div.
Cross-Area System Projects
Vehicle Engineering Div. Chassis Component Eng. Div.
Center Head
Engine Engineering Div. I - III Drive Train Eng. Div. I - III Electronics Eng. Div. I - IV Material Eng. Div. I - III
The head of Center 4 is supposed to work on integrating all the divisions of the different technical areas more actively than his predecessor in the old organization. In the old organization, the division managers of the different technical areas were relatively independent. Because in the RAD group, technical inventions within each
technical area were important, top management gave each division relatively strong autonomy with respect to research agenda and time frame. The introduction of the
cross-area system projects represents the new orientation of Center 4, as well as the important role of its center head.
Toyota Central Research & Development Laboratories, Inc., which has about 1000 researchers, continues to work on basic research as a separate R&D unit. In
addition, because Center 4 became less research-oriented, Toyota established a new Research Division internally, and assigned about 500 researchers to this, primarily from the old RAD group.
Summary
of
the
Changes
in
Organizational
Structure
Figure 7 summarizes the changes in the vehicle development organization from the old product development group to Centers 1-3, and in the component/system development organization from the RAD group to Center 4. The product development First, it excluded
group was simplified in two ways by the new center organization.
some areas of component and system development in order to focus on the integration of product development activities, rather than component and system development. This change reduced the number of people in the core product development
organization from about 7000 to 5000. three centers.
Second, the entire organization was divided into It is a
As a result, each center has only about 1500 to 1900 people.
drastic change with respect to management scope, if compared with the original size of 7000 people. Regarding the component and system development organization, there was a shift in orientation from research to system development. Because Center 4 is
responsible for the development of more components and systems than the RAD group, the number of people increased from about 2000 to 4000.
Figure 7
Changes in the Component/System
Coverage of the Vehicle Development Organizations
Development
and
the
Change in Coverage of Product Development Organization Basic Components Basic Research & Development Systems Product Development Group Vehicles
Advanced Engineering Development Center 1 - 3 Product Development
Change in Coverage of Component Development Organization Basic Components Basic Research & Development Systems Vehicles
RAD Group (Higashi-Fuji Technical Center)
Advanced Engineering Development
Product Development
Center 4 (Component & System Center)
Old Orgnaization
New Organization
Source: "Outline of Toyota Technical Center", Toyota Motor Corporation, 1991 and 1993
4.
Outcomes
of
the
Organizational
Changes
Because
of
the
introduction
of
the
center
organization,
Toyota
achieved
significant improvements in several areas.
In particular, it simultaneously improved This section on these two
both cross-functional project integration and multi-project integration. discusses some important outcomes of the reorganization, focusing
perspectives, as well as some potential problems of the reorganization.
Project
Integration
through
Streamlined
Structure
Figure 8 summarizes the outcomes of the reorganization with respect to the reduction of coordination tasks for chief engineers to manage different functional groups. As discussed earlier, before the reorganization, each chief manager had to on average, Primarily 48 departments of the in 12 divisions in to the manage number new of vehicle
coordinate, development.
because
reduction
functional
divisions and departments, in the new organization a chief engineer has to manage only 15 departments in 6 divisions. back in 1976, when At in 6 that there time, were each The Toyota also compared these numbers with those only chief change about 5000 people had new to working for product with 23 the
development. departments
engineer into the
communicate
divisions.
organization
reduced
communication complexity down to the level in 1976, when the Shusa organization worked more effectively than the time just before the reorganization. Each functional manager and engineer now covers a wider portion of the
automobile design.
Because of this, cross-functional coordination tasks had naturally
decreased among chief engineers as well as engineers, which directly affected the effectiveness and the efficiency of project integration. In addition, it has become
relatively easy for functional managers and engineers to see the entire picture of a vehicle project. This change also solved some other problems in the old organization.
Engineers can train on the job for the time when they will be promoted to a manager, because they can now obtain knowledge of a broad scope of component engineering.
Engineers can now also obtain more sense of achievement regarding specific vehicle projects. This seems to have positively affected the level of engineers' commitment
and job satisfaction. Figure 8 Number

50 40 30 20 10 0 6 23 12 6 15 48
Changes in the Number of Divisions to be Coordinated of Divisions/Departments
Division Department
1976
1991
1993
Source: "Activities and Achievements of FP21", Toyota internal document, 1994
Because each functional manager is responsible for fewer vehicle projects than before, it has become easier for a chief engineer to communicate frequently with functional managers. the entire functional There used to be regular meetings among a chief engineer and managers only about once every two months. Now, chief
engineers and the six functional managers, as well as the center head, have weekly meetings, called the Center Management Meeting. The introduction of the center heads also greatly contributed to the
improvement of project integrity.
Chief engineers both in the old and the new On the the
organizations have not assumed formal authority over functional managers. other hand, center heads oversee all product development projects,
including
work of functional managers. different engineering functions.
The Center heads can work directly on integrating Using this position, they also support chief
engineers to coordinate different functions.
For example, when a chief engineer
encounters difficulty in negotiating with a strong functional manager, he can discuss the issue in the Center Management Meeting, and the center head may support the
chief engineer. In this sense,
Decisions made as a center can be smoothly and quickly implemented. through the combination with the center head, chief engineers
regained the strong authority that the original Shusas used to enjoy. Table 1 summarizes achievements on some important measurements. The new
organization helped reduce development costs on the average project by 30 percent. The number of testing prototypes used in the average product development project decreased by 40 percent. This reduction of prototypes was a primary source for the The reduction of the number of testing prototypes In order to test many
reduction in development costs.
has reflected the effective communication in the organization.
different items in one prototype, an intensive coordination among different design divisions and testing divisions is needed. For example, without appropriate
communication, it is difficult to install the testing items for interior equipment and chassis into a single and prototype. Because of the has simplification also increased of the the line extent of of
communication
project
coordination,
Toyota
simultaneous engineering, which has helped cut project lead time by a few months. Stronger project management supported by the center head may also have
contributed to quicker decision making and development processes. Table 1 Outcomes of the Reorganization to the Performance change Development cost -30% (average project) Number of prototypes (average project) -40% Center 8
Major factors Reduction of prototypes Increase in component sharing Intensive coordination between different engineering and testing functions Increase in CAE usage Lead time Shortened by a few Reduction of prototypes (average project) months More extensive simultaneous engineering Source: "Activities and Achievements of FP21", Toyota internal document, 1994
We rely on the data a manager at Toyota has provided us. He said that these numbers are based on a comparison of similar projects. We were not provided with details of the measurement methodology. These numbers include not only direct outcomes of the change in the organization structure but also those of accompanying process changes. In addition, some factors that are not directly related to the reorganization, such as the increase in CAE usage, are also included.
Multi-Project The new
Integration organization
within
Center the multi-project management perspective
strengthened
with the strong leadership of the center head and strong support from the centeroriented planning division. Because of the large number of vehicle projects, it was
difficult to manage Toyotas entire project portfolio and inter-project coordination. Now, the weekly Center Management Meetings discuss the details of multi-project management. In addition, each center now has its own building so that all members Co-location at Toyota emphasizes the geographical
within a center can be co-located.
integration of the center members rather than just the members of an individual project, which is becoming common in the U.S. In order to achieve the integration within a center, to begin with, each center defines its own vision and theme for product development. focuses on projects within the center helps Sharing a basic vision that effectively coordinate
members
engineering activities.
The current development themes of each center are:
Center 1: Development of luxury and high-quality vehicles Center 2: Development of innovative low-cost vehicles Center 3: Development of recreational vehicles that create new markets.
One example of the changes can be seen in cost management activities.
Targets
for development and product costs used to be set and managed mostly at the individual project level, led by individual chief engineers. used to work directly for chief engineers Most cost management staff members and their orientation was the cost
performance of individual projects.
In the new organization, in addition to the cost
management at the project level, each center manages the cost target of all the projects within the center, led by the center head. Cost management staff members
are now located in the Planning Division in each center and report to the planning division manager and the center head. management Specifically, is each supposed center to has add been Through this new organizational setting, cost the multi-project on more management perspective. among
working
component-sharing
multiple vehicle projects, which is one of the most effective ways to reduce product costs. In order to achieve this, project-level management alone was not sufficient. With respect to component sharing, one critical issue each center is now
working on is the reduction of the number of basic platforms utilized among multiple products. For example, in Center 2, currently there are five distinctive platforms: 1.
Celica / Carina ED / Caren, 2. Camry / Vista, 3. Corona/ Carina, 4. Corolla / Sprinter, and 5. Tercel / Corsa / Starlet. five many. different platforms for The planning division manager in Center 2 believes that these compact-size front-wheel-drive models are too
Center 2 is planning to significantly reduce the number of the platform
designs within a few years. People at Toyota tended to think that, because each of the five platform designs had been produced at the level of more than 200,000 units/year, a distinctive design could be justified by economies of scale. This is true with a distinctive die that is
needed for different platform designs, because at that level of production, each die is fully used for its life cycle. However, there are many other areas that could benefit Some areas that could expect much cost prototype production, testing, designing,
from the reduction of platform designs. reduction from platform sharing include
and component handling.
The planning division manager concludes that one of the
major challenges for the center in general is to develop multiple products that use as many common components as possible, and still enable each product to provide
customers with as much differentiated functions and values as possible.
The focus of
each Planning Division on the limited number of technically related projects within the firm has facilitated more careful project portfolio management within the center. With respect to component systems smaller than the platform design, Toyota has started a component sharing program that monitors component and system usage in individual projects. which ranges from Toyota chose 290 different component systems for this program, a system assembly like an instrumental panel to a small
component like a door regulator.
A center makes a list of a limited number of A new product development project
component variations for each component group.
is then supposed to choose a component from the list.
When a vehicle project wants to
invest in the development of a new component design, it must come up with a new design with a better cost-value ratio than any of the existing components on the list. When a new component design meets the requirement, it replaces one of the
components on the list, so that the total number of variations will not increase within the firm. become Because of the center organization, management of this program has and effective. In the old organization, because of the large
practical
management scope, this type of sharing was not managed properly. One of the other signs of the integration of center members is a sense of intercenter competition that center heads and members have begun to possess. centers have been competing to past with each other that regarding had been the percentage The three of cost the
reduction
compared
projects
developed
before
reorganization.
This competition has a positive impact on organizational learning.
The center head encourages engineers to learn any superior processes from other centers9. Each center has its own engineering functional divisions such as body Three engineering divisions for the same type competing. For example, when one body
engineering and chassis engineering. of technologies and components are
engineering division comes up with an effective idea for cost reduction, the other two divisions are strongly encouraged to learn the idea, so that they will not stay behind other centers. Other activities have started within each center to strengthen the center
integration, which directly or indirectly helps multi-project coordination within the center. For example, Center 1 held a design and engineering competition in which
groups of young designers and engineers compete with innovative cars for a motor show. Center 3 has started a program called the "Let's Challenge Program," which center members to submit any interesting and useful ideas for new
encourages
The competition may have a negative impact on organizational learning in some other firms, if each center tries not to transfer its good processes. At Toyota, this does not seem to be the case.
models. enhance
Each center also publishes its own news letter. the intra-center integration,
These activities and programs
Potential
Problems
of
the
Center
Organization
The planning division manager of Center 2 raised two challenging problems. First, it is difficult Extensive to balance the chief to engineer's each chief autonomy engineer and from the the center center
integration.
guidelines
given
management may cause a negative impact on the motivation and commitment of chief engineers. on what Toyota doesn't want chief engineers to think that they should work only the center provides decides. basic and This planning manager in believes which that chief the center
management
critical
guidelines,
engineers
maintain authority.
There are six people who play a critical role in the center Except for
management: three center heads and three planning division managers.
the planning division manager of Center 3, who used to be an engine design manager, five of the six used to be chief engineers. any unnecessary misunderstanding This personnel assignment may help avoid the center management and chief
between
engineers. Second, there may be some problems regarding inter-center coordination. The
center grouping based on technology and design relatedness aimed at minimizing the inter-center coordination requirements. For example, the old GM organization, which
was based on divisions such as Chevrolet and Buick, created difficulties because similar designs and technologies were utilized by products in different divisions and resulted in excessively similar products. center organization that at tries Toyota to is more Compared to that kind of grouping, the appropriate and for a product development products.
organization
share
components
produce
distinctive
However, there are still some problems. one example.
The planning manager in Center 2 mentioned
When sports-utility vehicles became a hot segment, all three centers Because Toyota doesn't need to develop inter-center coordination was required.
proposed the development of such models. three sports-utility vehicles in parallel,
Although benefits
inter-center from the
coordination
could
become within
the the
next center
problem seem to
for
Toyota, the
inter-project
integration
surpass
potential problems at this point of time.
5.
Discussion
and
Conclusion
This case study has explained changes in the product development organization at Toyota. paper There are several important points we can learn from this case. that this change was definitely the first major First, this of
confirms
reorganization
product development at Toyota since its establishment of the Shusa organization in the mid-1960s. Figure 9 describes the hypothetical evolution pattern with respect to the Toyota shifted from a function-
organizational orientation in product development.
oriented to project-oriented structure, and, as Clark and Fujimoto (1991, p. 276-280) discussed, by the late 1970s, most Japanese companies had followed Toyota. By the mid-
1980s, some Japanese firms, including Toyota, had shifted to strong project-oriented management systems. project-oriented This paper has argued that Toyota has shifted again from to multi-project management. One of the most
management
important aspects of effective multi-project management is to improve both crossfunctional and inter-project integration at the same time. Cross-functional
integration tasks have to be streamlined so that additional tasks for inter-project integration can be done practically. solution, at least for Toyota. The center organization seems to be a good
Figure 9
Evolution Pattern to Multi-Project Management
Strong
Function-oriented Management
Multi-Project Management
Inter-Project (Multi-Project) Integration
Evolution Pattern
Weak
Project-oriented Management
Weak
Cross-Functional Integration
Strong
Second, in order to benefit from the center organization, a structural change of grouping some projects together is not sufficient by itself. firms in the world also employ some type of product grouping. alone does not necessarily lead to effective Most other automobile However, the grouping management, and
multi-project
organizations at most firms do not seem to work as effectively as Toyota 1 0 . several important changes along it with the introduction the number of of the
Toyota made center in In
multi-project
organization.
For
example,
reduced
engineering
functions
Centers 1-3, and added the component and system development center (Center 4).
this way, each center is simplified enough to simultaneously manage multiple projects within the center. The management scope of center heads and planning division A powerful
manager is small enough to oversee all activities within the center.
planning division with more than 150 people in each center also seems essential to
10
This statement is based on interviews at example of the differences from Toyota is management are not divided into centers. research agenda, and we need to wait awhile
Nissan, Mitsubishi, and Mazda. At these firms, one that some key functions such as planning and cost However, a comparison with other firms is our next before reaching a conclusion.
support the center head. center activities. which Each leads
Clear goal-setting specific to each center helps integrate center to is encouraged to compete within with other centers The in
performance,
effective
learning
the
firm.
center
organization at Toyota works effectively because all of these supporting mechanisms have been carefully designed. Toyota seems to have established an organizational structure and process for product development that will set new standards for international bench-marking.
This change has also come at an appropriate time.
Because many other competitors
have adopted heavyweight product manager system, in which Toyota had enjoyed leadership in the 1980's, Toyota's advantage over competitors had been disappearing. However, we may not exactly know the real benefits or problems of the new
organization because new vehicle projects that started after the reorganization have not been introduced to the market yet. We need to continue to study the center
organization at Toyota, as well as similar organizational changes in other automobile firms.
References Abegglen, James C., and George Stalk, Jr.: 1985. Kaisha: York, Basic Books. The Japanese Corporation, New
Clark, Kim B., and Takahiro Fujimoto: 1991. Product Development Performance: Strategy, Organization, and Management in the World Auto Industry, Boston, MA, Harvard Business School Press. Fujimoto, Takahiro, and Antony Sheriff: 1989. "Consistent Patterns in Automotive Product Strategy, Product Development, and Manufacturing Performance Road Map for the 1990s", Cambridge, MA, MIT International Motor Vehicle Program, International Policy Forum. Ikari, Yoshiro: 1985. Toyota tai Nissan: Shinsha Kaihatsu no Saizensen (Toyota versus Nissan: The Front Line of New Car Development). Tokyo, Diamond. Nobeoka, Kentaro, and Michael Cusumano: 1994. "Multi-Project Strategy and MarketShare Growth: The Benefits of Rapid Design Transfer in New Product Development", MIT Sloan School of Management Working Paper, WP #368694/BPS. Toyota Motor Corporation: 1992 & 1993. "Outline of Toyota Technical Center." Toyota Motor Corporation: 1994. "Activities and Achievements of FP21," in Japanese: "FP21 no Katsudo to Seika", Internal document. Womack, James, Daniel Jones, and Daniel Roos: 1990. The Machine that Changed the World, New York, Rawson Associates.

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Action Learning: Research and Practice Vol. 4, No. 1, April 2007, pp.

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Learning from Toyota

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Learning from Toyota

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Learning from Toyota

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Figure 1. Learning in traditional NPD

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Learning from Toyota

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Figure 2. Practical problem-solving in FP21

Learning from Toyota

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Figure 3. New product development organization after restructuring

Learning from Toyota

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Learning from Toyota

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2. Integrated product experience (individual/ organizational)

3. Continuous improvements and dynamic change(individual/ organizational)

Source: Own compilation.

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Learning from Toyota

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(Edited by Michael Cusumano, MIT)

organization management. are grouped

engineering, project, "lean the

engineering, Motor Vehicle

technologies and designs in multiple projects.

Firms also have to consider how to

optimizing the development of one product at a time.

In contrast, Toyota managers

Because most product-management research has focused on the

structure is weak at cross-functional integration.

Functional organizations also lack a

context of a specific project as an integrated system.

retaining the distinctiveness of individual products, firms also need organizational

cost management planners between 1992 and 1994.

Planning Division to organize and support shusas. ten

At that time, there were already

members in the division.

require Toyota to change its product development strategy and organization.

following sections discuss these two problems in more detail.

Organizational Figure reorganization

engineering functional divisions, and each had a functional manager.

Group located at the Higashi-Fuji Technical Center. people 4 .

internal data on the number of frequent participants in meetings a product manager

In 1991, a chief engineer had to coordinate people in 48 departments in 12

Product Planning Div.

Toyota's Product Development Organization in 1991

Higashi-Fuji Technical Center

organization. At that time,