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The mutation of the Toyota Production System: Adapting the

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Article in International Journal of Production Research · August 2007

DOI: 10.1080/00207540701223493

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International Journal of Production Research,
Vol. 45, No. 16, 15 August 2007, 3665–3679

The mutation of the Toyota Production System: adapting

the TPS at Hyundai Motor Company

B.-H. LEE*y and H.-J. JOz

yDepartment of Sociology, Chung-Ang University, 221 Heuksuk-dong,

Dongjak-gu, Seoul, 156-751, South Korea
zDepartment of Sociology, Ulsan University, San 29, Moogeo 2-dong,
Nam-gu, Ulsan, 680-749, South Korea

(Revision received January 2007)

This paper examines the spread of Toyota Production System (TPS) through
Korea, by focusing on the experience of Hyundai Motor Company. Drawing
upon data obtained from field research, this case study interprets the adoption
of TPS from an evolutionary perspective, arguing that the emulation of TPS
should not entail adopting TPS as Toyota developed it originally, but to develop
one’s own production model. Over the past 40 years, Hyundai has developed its
own production model, Hyundai Production System (HPS), initially emulating
TPS, followed by re-interpreting and modifying TPS to adapt to the company’s
unique circumstances. HPS is a mutated form of TPS. The Hyundai case reveals
that the adoption of TPS involves a complex evolutionary process of
organizational learning and interpretation. This case sheds light on the possibility
of various paths toward lean production, and demonstrates that both external
and internal factors combine to form a complicated causal chain, influencing the
‘mutated’ emulation of TPS and generating a certain pattern of path-dependence
in the evolutionary trajectory of a particular production model.

Keywords: Toyota Production System; Lean production; Production model;

Evolutionary perspective; Hyundai Production System

1. Introduction

Over the past two decades, Toyota Production System (hereafter TPS) has
demonstrated its overwhelming influence on the restructuring of the global auto
industry. This is evidenced by the on-going perception of TPS as a world-class
manufacturing model (Oliver et al. 1994) or as ‘the machine that changed the world’
(Womack et al. 1990), along with the unceasing advances of Toyota amid global
auto market competition. Indeed, TPS has disseminated beyond Toyota to other
automakers and other industries across the globe, in various forms—transplants,
joint ventures, imitative learning, and consultancies (Ebrahimpour and
Schonberger 1984).

*Corresponding author. Email: bhlee@cau.ac.kr

International Journal of Production Research

ISSN 0020–7543 print/ISSN 1366–588X online ß 2007 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/00207540701223493
3666 B.-H. Lee and H.-J. Jo

Korean automakers are no exception in attempting to adopt TPS, so as to

enhance their operational efficiencies and business competitiveness. TPS has been
a prime benchmark for Korean automakers, as they have viewed Toyota as
an exemplary role model, having made successful inroads into global markets.
At Korean auto plants, however, TPS has not been adopted as it has been in Japan;
rather, it has been implemented in a deviant form, for various socio-contextual and
organizational reasons.
Our study aims to examine the spread of TPS through Korea, by focusing
on the experience of Hyundai Motor Company (hereafter Hyundai). Hyundai is an
interesting case for several reasons. First, Hyundai is a ‘Cinderella’ case, having been
transformed from a low-cost domestic manufacturer in a developing country in the
early 1970s to a major player in the contemporary global auto market. At present,
it is ranked among the top 10 automakers worldwide, both in terms of production
volume and product quality (Jo 2005). Second, Hyundai is a sterling example that
can shed light on how TPS has been implemented by Korean manufacturing firms,
since it represents a typical or influential business model in terms of corporate
governance, management style, market strategy, and labour relations in Korea.
Third, given the fact that little research literature exists on the transferability
of TPS to developing countries, the Hyundai case may contribute to broadening our
understanding of the logistics, advantages and disadvantages of TPS dissemination
to non-Western, developing economies. Finally, Hyundai presents a good case
to figure out key factors constraining and shaping the adoption of TPS at a recipient
site, thereby helping to further develop a theoretical framework to analyse the
processes and outcomes of TPS diffusion in new venues.
Drawing upon data obtained from field research, this case study attempts
to interpret the adoption of TPS from an evolutionary perspective. Our argument is
that the emulation of TPS should not entail adopting TPS as Toyota developed
it originally, but to develop one’s own production model, thereby creating
a competitive edge versus global competition. In this vein, our case study offers a
new lens through which to view the spread of TPS across borders.
In field work which was conducted between April 2005 and March 2006 we
interviewed a number of senior managers and supervisors in production and
production technology departments, as well as having additional talks with union
officials and collecting primary company data. The next section (section 2) presents
a detailed review of the literature on the transferability of TPS, followed by a
historical overview of TPS emulation at Hyundai (section 3). In section 4, why
Hyundai has adopted a deviant form of TPS is explained. Section 5 compares
Hyundai’s manufacturing performance with that of Toyota. Finally, in section 6,
implications of this case study will be addressed.

2. Literature review

To examine the transferability of TPS, we need to start by clarifying what TPS is.
Since Sugimori et al. (1977) shed light on the basic concepts of TPS in their seminal
article, a number of academics have tried to capture the essence of this extraordinary
manufacturing innovation, by labelling and configuring it in various ways. Over
time, the concept of TPS has evolved from a combination of waste-eliminating
 The mutation of the Toyota Production System 3667

manufacturing techniques and full labour utilization (Sugimori et al. 1977) to

the post-Ford or ‘lean’ production system that encompasses supply chain manage-
ment, RandD functions, customer relations, and lean production organizations
(Womack et al. 1990). As a consequence, TPS has been described as a method,
a process or program, a strategy, a goal, a belief or state of mind, and a philosophy
(Vokurka and Davis 1996). This multi-facet concept creates some confusion
(Bartezzaghi 1999). Moreover, because Toyota evolved its manufacturing operations
to deal with labour shortages and changing market demand in the 1990s (Katayama
and Bennett 1996, Shimizu 1998, Benders and Morita 2004), TPS can be viewed
as an evolving entity, rather than a fixed one, causing further difficulties
classifying it.
Given this confusion, there has been heated debate over the transferability
of TPS along three lines of thought: a convergence perspective; a structuralist
perspective; and a contingency perspective.
The convergence perspective, which mainly draws upon the International
Motor Vehicle Program (IMVP) (founded at the Massachusetts Institute of
Technology in 1979), a collaborative research consortium investigating the
performance of the global motor industry (Lewis 2000), highlights the superb
performance of TPS, as achieved by Japanese manufacturers, including Toyota and
several Western emulators. According to this perspective, TPS, which was invented
in one context, is recognized as the dominant production system of the 21st century,
verified by its superior performance versus global competition (Cusumano 1988,
Krafcik 1988, Womack et al. 1990). This school of thought treats TPS, or lean
production, as a universal set of management norms that can be transferred
anywhere (Adler and Cole 1993, Womack and Jones 1994). Despite some
variations reflecting the recipients’ strategies and contexts, these authors insist
that TPS becomes the manufacturing system into which every business player
tends to converge when trying to survive in the contemporary global market
(Forza 1996).
The structuralist perspective denies the universal transferability of TPS,
emphasizing the unique socio-economic context in which Toyota exists (Williams
et al. 1994). Nakamura et al. (1996) note that the transfer of TPS across national
boundaries is considerably more difficult than the spread of specific TPS
components, given different social contexts, which include differences in culture,
social relations, economic conditions, and business practices. Thus, this school insists
that TPS, historically, has evolved under Toyota’s singular conditions, and that its
substance can be transferred to other structural contexts only with difficulty
(Williams and Haslam 1992).
Between these two polar positions, the contingency perspective postulates a
compromise, by considering both the superiority of TPS and the necessary
pre-conditions and constraints related to its transferability. This academic group
stresses that the successful implementation of TPS is dependent upon several
organizational factors at recipient sites, like long-term management strategies,
labour-management cooperation, employee and union involvement, open commu-
nication, and investments in training (Harber et al. 1990, White et al. 1999). They
also point out that the processes and outcomes of TPS emulation are conditioned
by external forces (i.e. market situations, international division of labour, local
institutional environment, social culture) (Liker et al. 1999, Mehta and Shah 2004).
3668 B.-H. Lee and H.-J. Jo

In a similar vein, Doeringer et al. (2003) revealed national differences in the actual
adoption of TPS, comparing Japanese multinationals across the United States,
the United Kingdom and France.
Among the three different theoretical views of the existing literature, the
convergence and structuralist perspectives both present a one-sided rationale for
assessing the diffusion of TPS—the first disregards the impact of national and
organizational factors over the transfer of TPS; whereas the latter underestimates
the universal advantage that TPS has enjoyed in the post-Ford era. By contrast, the
contingency perspective has the merit of combining these two approaches to generate
a more balanced view, thereby helping to capture the variations in process
and outcomes in the transfer of TPS across firms and countries. However, the
contingency perspective is somewhat limited in its ability to clarify how and why
recipient firms adopting TPS develop their own workable production models,
deviating from the original model. The contingency approach provides a static
picture of variations in the adopted form of TPS, but does not explore the dynamic
evolution of TPS implementation, how the components or principles of TPS have
been transmuted by recipient sites. The problem with this perspective is that
it focuses only on contingencies related to TPS dissemination, ignoring the recipient’s
active role—management’s strategic capabilities—in dealing with various
eventualities.
In this vein, the ‘emergent process’ perspective, hypothesized by Liker et al.
(1999), is useful in compensating for weaknesses in the contingency theory. This
perspective views the spread of TPS as an evolving and indeterminate transformation
process, which can lead to various outcomes, depending upon the form of TPS
adopted. Bartezzaghi (1999) helps to understand the process perspective by
distinguishing between contingent models and paradigms. According to him, the
production model is a set of ‘optimal’ manufacturing techniques and practices for
a given company, while the production paradigm is a coherent body of ‘general’
principles to design and manage manufacturing systems. The production paradigm,
given its competitive advantage, tends to prevail as the universal standard emulated
by most industrial players, until a new system emerges in the changing business
environment.
TPS was devised as a specific production model suitable for Toyota’s unique
circumstances in the 1960s (i.e. a lack of natural resources, Japanese work attitudes,
life-time employment practices, enterprise unions, little discrimination, and good
opportunities for job promotion among blue-collar workers), as stated by Sugimori
et al. (1977). Under drastic changes in market conditions—that involved intensified
competition and diversified customer demands—TPS, equipped with a set of new
manufacturing principles, like JIT and Kaisen, became recognized as a production
paradigm suitable to replace the existing Ford mass production system, with its
success verified by the outstanding manufacturing performance that Toyota and its
clone plants have achieved since the 1980s.
Emulating TPS, as it originated with Toyota, many manufacturers have
then developed their own production models, conditioned and constrained
by various societal factors (i.e. market situations, institutions, institutions,
culture, work norms, supply chain structure) and organizational factors
(i.e. business strategy, corporate history, labour-management relations, pre-existing
interpretative mechanism of production technology, and the level of worker skills)
 The mutation of the Toyota Production System 3669

(Liker et al. 1999, Lewis 2000). Those production models have two inherent
characteristics:
1. The models are specific to individual manufacturers, even though they
attempt to simulate the basic principles of TPS; and
2. The models have evolved over time, by means of the continuous selection,
interpretation, assimilation, and transmutation of the principles and
operational elements of TPS, in order to deal with changing business
conditions (Bartezzaghi 1999).
As indicated by Lewis (2000), drawing upon resource-based theory, no
manufacturer produces an exact replica of Toyota’s manufacturing arrangements.
Each must follow the trajectory of its own production model to establish its own
competitive advantages.
Figure 1 depicts a hypothetical research model, summarizing the above literature
review on the diffusion of TPS. Here, TPS is defined as a collection of principles
(including manufacturing methods, work organization, human resource manage-
ment, and supply chain management), which originated with Toyota, but now is
recognized as a standard for manufacturing worldwide. Those TPS principles may be
emulated by various means; including prototyping (an initial replica of manufactur-
ing arrangements), technical transfer (imitation or import of manufacturing facility
and technical knowledge through Toyota-related consultancies), and benchmarking
(establishing goals and comparative standards). Through this emulation process, the
recipient ‘mutates’ the TPS principles; in other words, it develops its own production
model by selecting, interpreting, and transmuting TPS principles to meet its own
business context, comprised of both external and internal (or organizational) forces.
Note that this research model is applicable to ordinary manufacturers that have
adopted their own course while emulating TPS, without having any direct linkages
to Toyota, such as transplants or joint ventures. Consequently, it offers more
generalized insights about the spread of TPS across borders. The next section applies
this research model, in order to examine the specific case of Hyundai.

TPS
Recipient's
Mutation
– Manufacturing method of TPS
Emulation channel
and techniques
– Work organization –Prototyping
–Technical Internal
– HRM contingencies
transfer
– Supplier management

External
contraints
[Japanese context]

Figure 1. Hypothetical diagram of a TPS diffusion model.

3670 B.-H. Lee and H.-J. Jo

3. Historical trajectory of TPS emulation at Hyundai

Hyundai, established in 1967, started to emulate TPS when it began production of its
subcompact car model, Pony, in 1975. At the time, the company invited Seiyu Arai,
the former senior engineer for Mitsubishi, to be a technical advisor while it was
building its first assembly plant. Arai, who had been a student of Ohno Taiichi,
the inventor of TPS, played a crucial role in devising the technical layout and
operational processes of the Hyundai plant. In particular, he encouraged Hyundai
to adopt some TPS principles in its manufacturing processes. For instance, Arai
taught Hyundai management how to carry out Toyota’s ‘three-problems ban policy’,
to eliminate (1) irrationality, (2) imbalance, and (3) superfluity (in sequence
of priority) in manufacturing operations (Kang 1986). Interestingly, however,
he reversed the original order of the policy priorities, in order to cope with Hyundai’s
resource shortage during its start-up stage, by stressing the elimination of superfluity
as the first priority, followed by elimination of imbalance and irrationality.
In addition, the Japanese advisory group, led by Arai, adopted TPS manufacturing
methods to improve the tooling of stamping dies, to shorten the set-up time for press
lines, and to make the body-welding line more efficient at the Hyundai plant. They
also shaped the organization of manufacturing processes (including the leading
role of shop-floor foremen), imitating the prototype of Toyota and other Japanese
automakers. During our interviews, Hyundai senior managers admit that Arai
and his advisory group helped Hyundai management to enjoy the advantage
of ‘late-development’, by emulating TPS in a selective manner.
In the mid 1980s, Hyundai made significant inroads into the global auto market,
along with the successful entry of its Excel (a subcompact car) into the North
American market. Since then, it has exhibited rapid growth owing to domestic
motorization and increases in demand overseas. Its domestic production volume
soared more than 10-fold between 1980 (64 070 units) and 1990 (650 388 units), and
almost 30-fold between 1980 and 2000. Against a backdrop of dramatic business
growth, Hyundai aggressively expanded its manufacturing capacity through the
1980s and 1990s. During this period, it adopted elements of TPS in a piecemeal
and discontinuous way; whenever it renovated production lines along with the
introduction of new car models, or when it opened new assembly plants.
In the early 1980s, when Hyundai renovated its first assembly plant to establish
mass production lines for Excel, Hyundai management made a large investment in
automated production equipment, and implemented the concept of just in time (JIT),
in a rudimentary form, by changing the method of material handling from the
existing bulk-parts delivery system to sequential parts delivery.
In the late 1980s, when a second assembly plant was built, Hyundai management
introduced the production scheme of flexible automation by installing the ‘flexible
body line’ (FBL), thereby enabling them to facilitate the production flow of various
cars (2–4 models) and to smoothly adjust production volume via a reduction
in set-up time. While building the FBL, Hyundai contracted for technical consulting
from Yamashita Machinery, which had designed and supplied the main buck system
of the body-building line for Toyota, and had devised the Toyota-imitated ‘one buck
system’ along with its own invention of the ‘windmill jig system’ (Jo 1998). The one
buck system and the windmill jig system are both automated systems using a set
of modified 4-dimension main bucks to weld panels into auto body frames at the
 The mutation of the Toyota Production System 3671

body-welding shop—the former in the body-building line and the latter in the body-
re-spot and the body-completion areas. The two body-welding technologies enabled
Hyundai management to flexibly switch car models in the production flow and save
working spaces. In addition, the Hyundai plants computerized sequential parts
inventory management, in order to upgrade the level of JIT parts delivery and reduce
work in process (WIP). At the same time, the company launched various shop-floor
campaigns (i.e. Kaisen and the suggestion program; the ‘Three-Rights Campaign—
Do Right things at the Right time in the Right place’ the ‘Five Work Attitudes
Campaign—Plain, Orderly, Clean, Neat, and Disciplined Work’; and the shop-floor
dialogue forum) patterning itself after Toyota’s workplace innovation activities.
According to the Hyundai managers we interviewed, the rapid development of
a mass production system enabled the company to achieve Toyota productivity levels
during this period.
In the third assembly plant, which opened its doors in 1991, Hyundai moved
towards a flexible mass production model (Lee 1997). It upgraded the FBL and
assembly line control (ALC) system with computerized operations to synchronize
production orders, thereby expanding its capability to manufacture more diverse
car models in a production line, with less WIP and parts inventory. This advanced
production process was aided by the implementation of an MRP (material
requirements planning)-based system and a value-added network (VAN) to directly
control and link assembly line parts orders with outside vendors in a JIT manner.
From the early 1990s, Hyundai management also introduced the principles of TPM
(total preventive maintenance) and TQC (total quality control), encouraging
production workers to cover maintenance and quality assurance jobs in their work
areas, like Japanese workers at Toyota plants.
In the late 1990s, Hyundai management built a green-field plant (in Asan),
simulating Toyota’s Kyushu Miyata plant. Designing this new plant, Hyundai
utilized a group of retired Toyota engineers to reproduce the manufacturing layout
and facilities of the Miyata plant. The Asan plant, which started its operations in
1996, was almost identical to the Miyata plant in its layout of production processes.
Like the Toyota green-field plant, for instance, the Asan plant consisted of a set of
segmented assembly lines, with inter-line buffers (about three vehicle units), and it
improved the working environment by automating production facilities using an
ergonomic design. It is noteworthy that the new plant attempted to adopt the ‘pull’
production system, controlled by MRP-based scheduling, rather than by the Kanban
system, thereby remarkably improving the ratio of completed sequential production
up to 95% (compared with 75% at the brown-field plants) and reducing parts
inventory down to 0.8 days (compared with 1.7 days at the old plants) during its
start-up stages (Chung 1997). However, this attempt was halted by the economic
crisis in 1997 and the company’s unprecedented massive downsizing in 1998, so that
this plant then returned to the traditional ‘push’ production model (Jo 2001).
Furthermore, this green-field plant implemented such new programs as direct
supplier delivery (of auto parts to production lines), a 100-PPM (parts per million)
quality assurance campaign, a work team quality guarantee plan, and various
fool-proofing tools, both to mimic and catch up with Toyota.
After recovering from the economic slump of 1997–1998, Hyundai officially
began making efforts to develop its own unique production model, the so-called
Hyundai Production System (HPS) in pursuit of a global manufacturing network.
3672 B.-H. Lee and H.-J. Jo

Table 1. Roadmap of production system innovation at Hyundai.

Stage and component Description

1. APS (advanced planning and scheduling) To enhance the accuracy of production

2. E-BOM (enterprise bill of material)
3. ERP (enterprise resource planning)
4. SCM (supply chain management)
5. OTD (order to delivery)
Source: HMC internal document.
planning and maintain the optimal level
of auto parts inventory by visually
controlling the due date of customer
delivery
To develop the corporate-wide BOM data
base necessary for implementing ERP
To build an IT system to manage the entire
work flow from product development,
manufacturing, sales and customer
service
To establish a systemic network to inter-
connect manufacturing processes to
suppliers, sales dealers, and customers
To build the total management system
to maximize the efficiency of business
processes, comprising customer orders,
parts supplies, manufacturing, and
distribution

In devising HPS, Hyundai management continued to benchmark itself against

Toyota’s manufacturing performance. At the same time, it made clear that HPS
was deviant from the core principles of TPS—of ‘pull’ production and ‘worker
involvement’—which were tried at the Asan plant, but with little effect.
The core of HPS is demonstrated by its ambitious multi-year plan of production
management innovation, as illustrated in table 1. In accordance with this strategic
plan, the company implemented APS (advanced planning and scheduling) in 2002 and
E-BOM (enterprise bill of material) early in 2006, while planning to install
ERP (enterprise) by the end of 2006 and establish a comprehensive production
management system combining SCM (supply chain management) and OTD (order to
delivery) in 2007. Hyundai management expects that, once the OTD system—that can
complete the business process of order-to-delivery within a week—is active, HPS can
become as lean and responsive to market demands as TPS. Despite its effort to
emulate the JIT operations of TPS, HPS (equipped with ERP and OTD) primarily is
governed by the traditional principle of ‘push’ production.
HPS is also a technology-oriented and engineer-driven approach, moving
towards minimizing worker involvement, which is in sharp contrast to TPS.
Hyundai management has made massive investments in automation over the past
two decades. As a result, the automation of the press and body-welding shops has
reached almost 100% and that of the assembly lines has increased up to 15%,
comparable with Toyota. Hyundai management chiefly has pursued automation
to save labour, compared with Toyota, wherein automation has been treated as
a supplementary means to make each worker’s job efficient and easy. Similarly,
according to Hyundai management, the HPS approach to fool-proofing machinery
is somehow different from Toyota’s system: the former stresses the elimination
 The mutation of the Toyota Production System 3673

Table 2. Modularization plan at Hyundai.

2001 2002 2003 2004 2005 2006

Cockpit module Module design & parts development Integrated modules development

Chassis module Simple Module design & Integrated modules development

assembly parts development

Front-end module Module design & Integrated modules

parts development development
Source: Cho et al. (2004).

Workplace management

Basic management Substance management

Work environment Common management

Worker morale Objective management

Safety and energy-saving Organizational management

Work attitude

Figure 2. Conceptual map of HPS workplace management innovation.

Source: HMC internal document.

of tasks in which workers may make a mistake, whereas the latter underlines
the prevention of faulty operations among workers. Another example of Hyundai’s
engineer-oriented approach can be identified in its emphasis on modular production.
Hyundai management set out a long-term plan to develop a modular production
system for establishing ‘just-in-sequencing’ (JIS) operations, as illustrated in table 2.
According to the plan, the overall level of modularization increased from 30%
in 2005 to 40% in 2006. This modularization has entailed the outsourcing of parts-
sequencing jobs, the automation of modular parts assembly, and the simplification
of main production lines (Lee 2003). As displayed in figure 2, HPS also includes
a Toyota-style workplace innovation programme, comprised of ‘basic management’,
thereby strengthening the shop-floor ethic of hard work and ‘substance manage-
ment’, stressing Kaisen activities and manufacturing performance (i.e. quality,
operational costs, and productivity). However, this workplace innovation program
and the previous shop-floor campaigns at Hyundai are contrary to the TPS principle
of worker involvement, in that they are solely driven by shop-floor management,
without production worker commitment. Instead, college-graduated engineers
3674 B.-H. Lee and H.-J. Jo

are the main force of production process innovation, since they are very motivated
to apply for numerous patents (i.e. four patents per engineer in 2005) because
of a merit-pay system and other performance incentives.
To summarize, Hyundai has developed a production model that deviates from
TPS, even though it has tried to emulate TPS via replication of a manufacturing
prototype, technical consultancies, and benchmarking over time. Hyundai’s
emulation of TPS is characterized as being (1) a selective and graduated adoption,
linked to the expansion of manufacturing capacity, (2) technology-driven
radical innovation (Fujimoto 1999, Liker et al. 1999), and (3) an engineer-led and
worker-exclusive approach.

4. Factors distinguishing HPS from TPS

As exemplified in table 3, HPS is quite distinct from TPS in the core aspects
of production management, as laid out by Sugimori et al. (1977). While TPS
primarily is governed by ‘pull’ production, based upon JIT process control and
flexible labour utilization, HPS is a ‘push’ production model, utilizing centralized
IT-driven process control. On the technical aspect, HPS and TPS both have pursued
the reduction of operational cost, though in a contrasting manner. The most crucial
difference between HPS and TPS is observed in the way of utilizing worker
capabilities: HPS has relied on engineer-driven workplace innovations and operation
control, rather than the full utilization of worker capability and involvement,
highlighted by TPS.
What has made the Hyundai production model deviate from TPS over its 40-year
development? The differences at Hyundai can be explained by several inter-related
factors. First, unlike Toyota, Hyundai management has emphasized high utilization
of production capacity under a supplier-dominated market condition, rather than
stressing flexible responses to customer demands. This business orientation, which
has led Hyundai management to stick to the push production model, is associated
with its dominant position in the domestic market and its sustained growth overseas.
Second, the poor technical capability of auto parts suppliers has been a key
source of uncertainty in Hyundai production processes. Most auto parts suppliers
are small- to medium-sized firms, which lack the resources (i.e. capital and

Table 3. Comparison of production management between Hyundai and Toyota.

Hyundai Toyota

Production mode PUSH PULL

Production control tool MRP system
Operational goal Planning-led production
Production management Hourly plan-based process;
management controlled by
production engineer division
Production condition High uncertainty and
fluctuation
Source: HMC internal document.
JIT (Kanban)
Minimization of inventory
Flexible control of production
process at the level of
production departments
Low uncertainty and stable
repetitiveness
 The mutation of the Toyota Production System 3675

highly-educated labour) to develop and maintain flexible and defect-free production

processes to meet automaker work orders (Lee and Lee 2005). Thus, Hyundai
management, as well as suppliers, cannot maintain a buffer to protect against defects
and the untimely delivery of supplied parts, thereby preventing HPS from adopting
the pull-mode JIT principle.
Third, and most importantly, confrontational labour-management relations
at Hyundai have been a major constraint (Cho and Lee 1989, Jo 2005). Labour–
management cooperation and worker collaboration is a key pre-condition of the
operation of the JIT production principle at Toyota (Forza 1996). The problematic
labour relations climate at Hyundai has been derived from worker mistrust of the
labour-exclusive management style. In the pre-democratization period (until 1987),
Hyundai management, aided by an authoritarian government’s labour control policy,
forced low wages and harsh working conditions on workers, who organized a militant
labour union in late 1987. In 1998, the massive downsizing which Hyundai
management undertook during an unprecedented economic slump, caused workers
to feel even more alienated from management. Given its deep distrust of management,
the labour union has prevented management from adopting performance-based
human resource management (HRM) practices and from flexibly utilizing labour. In
the mid 1990s, for instance, Hyundai management failed to implement performance-
based HRM plans, modelled on the career and compensation system of Toyota, due to
opposition from the labour union, which preferred an egalitarian system of wage
determination and job promotion (Lee 1997). The labour union also has interfered
with management’s policy to promote workplace innovation and flexible job rotation,
thereby resulting in rigid and Kaisen-free working practices on the shop floor. In fact,
the labour union forced management to reduce the items of TQC from 30 to 10, and to
use an increasing number of irregularly-contracted workers in the early 2000s. Given
the degree of mutual distrust between the militant labour union and Hyundai
management, management has been unable to promote any systemic flexibility in
terms of labour utilization and workplace innovation, aided by the performance-based
HRM schemes, which are a key part of and a prerequisite for TPS, thereby moving
further towards an engineer-led production model.
In summary, both external (i.e. a supplier-dominated market, the authoritarian
government’s labour control policy, part suppliers’ poor technical capabilities,
and the recent economic crisis) and internal factors (i.e. top management’s emphasis
on high utilization, a militant labour union, and worker distrust) have combined
to contribute to a technology-driven and ‘push-mode’ production model at Hyundai,
which has, over time, deviated further from TPS, despite the company’s unceasing
efforts to emulate it.

5. Comparing Toyota and Hyundai production performance

Hyundai management’s efforts to emulate TPS, which have evolved into its unique
production model, have been remarkably successful in boosting the company’s
manufacturing competitiveness to the level of Toyota’s. Drawing upon the recent
manufacturing performance of Hyundai, HPS can be compared to TPS. As shown
in figure 3, HPS has enhanced its utilization ratio up to 95.6%, close to that of TPS
(97%), over the past 5 years. It also has improved product quality (measured by the
3676 B.-H. Lee and H.-J. Jo

Figure 3. Manufacturing performance of Hyundai (unit: %).

Source: HMC internal document.
‘Sign off ratio’ is the aggregate index calculated by multiplying OK rates at the four inspection
spots: assembly line, final test, water-proof test, and ore-shipping test.
‘Allocation ratio’ is the relative ratio of net assembly working hours out of total assembly
working hours by production workers at the assembly plants.

sign-off ratio) up to 92.3%, drawing near Toyota levels (94–95%), over the same
period. In particular, Hyundai’s improvements in quality can be evidenced by the
recent favourable recognition of overseas markets; for instance, its passenger cars
rank as one of highest quality products in JD Power’s IQS (initial quality
satisfaction). Moreover, despite its push-mode production system, Hyundai has
reduced its inventory of parts delivery to 2 hours, comparable to Toyota, through
tight control of parts suppliers. These notable accomplishments mainly are
attributable to the company’s great efforts in engineer/technology-driven production
management innovation.
At the same time, HPS has a crucial problem in its labour productivity.
As illustrated in figure 3, the allocation ratio at Hyundai assembly plants has
declined from 75.8% in 2000 to 67.4% in 2005. A rough comparison of labour
productivity, measured in terms of production units per worker, reveals that
Hyundai’s (31.9) productivity was less than half that of Toyota (65.6) in 2003.
This problem could be explained by rigid work practices and little worker
involvement in shop-floor innovations, against a backdrop of confrontational
labour-management relations and employee mistrust of corporate management.
Nonetheless, as shown in table 4, since labour costs at Hyundai are around 40%
those at Toyota (as of 2003), the former has been able to maintain its price
competitiveness, despite poor labour productivity.
In short, Hyundai has achieved fairly good manufacturing performance (in terms
of utilization, product quality, and parts inventory) with its own production model,
HPS, despite experiencing declining labour productivity, caused by deviations
from TPS, which is worker-exclusive production management.

6. Conclusions

Over the past 40 years, Hyundai has developed its own production model, HPS,
initially emulating TPS, followed by re-interpreting and modifying TPS to adapt to
 The mutation of the Toyota Production System 3677

Table 4. Comparison of operational performance between Hyundai and Toyota.

Hyundai Toyota

2000 2001 2002 2003 2000 2001 2002 2003

Labour cost per worker 34 888 32 401 40 245 40 128 96 059 88 824 91 507 104 046
Production unit per worker 25.2 30.3 37.0 31.9 62.1 60.3 62.5 65.6
Source: HMC internal document.
Unit: US dollar.

the company’s unique circumstances. In other words, HPS is a mutated form of TPS.
Although it deviates from the ideal model of TPS (JIT pull production, equipped
with flexible human buffers and incremental innovation capacity), HPS (based on
technology-driven push production) has gained a remarkable competitive advantage
in terms of manufacturing utilization, product quality, and inventory management,
thereby overcoming limitations caused by the pre-existing low wage business model,
as indicated by Womack et al. (1990). Of course, it also should be noted that HPS
entails a labour-exclusive manufacturing approach, derived from the company’s
authoritarian management style (reflecting the owner-driven governance structure
and, as a consequence, ignoring the voice and interests of other stake-holders,
such as workers and the labour union) and unstable labour relations, contrary
to TPS.
Our case study addresses several implications for future research on the
dissemination mechanisms of TPS.
First, the Hyundai case reveals that the adoption of TPS involves a complex
evolutionary process of organizational learning and interpretation, as indicated by
Bartezzaghi (1999) and Liker et al. (1999). In contrast to the convergence perspective
that stresses the universal transferability of TPS in a simplistic manner, emulating
TPS involves complicated interactions between management’s strategic choices
and both internal and external factors, so that the manufacturing arrangement at
recipient sites ultimately may evolve into a unique production model, deviant from
the original form of TPS, that is better suited to the recipient’s environment. In this
light, future study of TPS dissemination needs to further explore the recipient
company’s active role and strategic capabilities in transmuting or ‘mutating’ TPS
principles to meet that company’s idiosyncratic circumstances, something which
largely has been overlooked in existing literature.
Second, the Hyundai case sheds light on the possibility of various paths toward
lean production. Of course, TPS represents an exemplary lean manufacturing
paradigm in the post-Ford era. However, as Lewis (2000) points out, a variety of
lean production models, capturing the essential virtues of TPS, can be developed
as diverse workable configurations of the manufacturing system. Indeed, HPS has
embodied lean manufacturing via its own way of radical innovation, evidenced
by its notable operational performances, although it is constrained by low labour
productivity, mainly derived from confrontational labour relations. Therefore,
another future task is to examine commonalities and differences between various
‘lean production’ models among firms emulating TPS, going beyond our single
case study.
3678 B.-H. Lee and H.-J. Jo

Third, the Hyundai case demonstrates that both external and internal factors
combine to form a complicated causal chain, influencing the ‘mutated’ emulation
of TPS and generating a certain pattern of path-dependence in the evolutionary
trajectory of a particular production model. This possible combination of external
and internal factors can be sorted out via analytical typology, which categorizes
various causal patterns of an examined phenomenon (i.e. TPS emulation) into
stylised types and, therefore, helps explain and predict the development of distinct
production models emulating TPS, as noted by Bartezzaghi (1999).

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