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World Class Manufacturing

Chapter · November 2020

DOI: 10.1002/9781118445112.stat08233

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 World Class Manufacturing

Riccardo Leoni *
(October 2019)

(entry for Wiley StatsRef: Statistics Reference Online)

Keywords: Toyota Production System, lean production, lean thinking, organizational and
managerial change, learning organization.

Abstract. World Class Manufacturing (WCM) indicates a set of organizational, work and
management techniques and practices (with specific acronyms) that took shape from the Toyota
Production System. WCM denotes a globally competitive company that has acquired not so much
financial or marketing but technical-manufacturing capabilities. The underlying production
system, as a result of refinements and improvements, has in turn been designated various terms,
recently arriving at World Class Management. This article briefly illustrates the origin of the
organizational configuration, and the work and management practices that WCM contemplates,
the complementarity that characterizes them, and the issues (cognitive, relational, and professional
status) that the paradigm shift entails in the daily life of organizations, whether industrial or
services, private or public, profit or non-profit.

*
Former Full Professor of Labour Economics, University of Bergamo, Italy (riccardo.leoni08@gmail.com)
1. Introduction: Meaning of the term

The term World Class Manufacturing (WCM) was coined by Hayes and Wheelwright (1984), and
popularized by Schonberger (1986) who used it as the title of his book. WCM indicates a set of
organizational and management techniques and practices that took shape from the Toyota
Production System (also known as lean production) characterizing a globally competitive company
that has acquired not so much financial or marketing but technical-manufacturing capabilities. The
underlying production system was originally designed by the engineer Taiichi Ohno (see Ohno,
1988; Shingo, 1982) in contrast to the Taylor-Fordist organization and management principles.
Under the impetus of various researchers and business managers, the set of techniques and
practices gradually developed and expanded, giving rise to a constellation of acronyms and terms
depending on the individual content: Just-in-Time (JIT), Kanban, Kaizen, Total Quality (TQ),
Total Quality Management (TQM), Company-wide Total Quality Control (CwTQC), Total
Productive Maintenance (TPM), zero defects, zero inventory, wastage (Muda), Cost Deployment
(CD), Business Process Reengineering (BPR), 5-S and Six Sigma, and so forth. For an explanation
of these and other terms and acronyms, please refer to the glossary in Hall (1983), Womack and
Jones (1996), Leoni (2013), Srinivasan (2014), and Kenett (2015).

2. Origin of the problem

The growth of Western economies in the three decades from the 1950s to 1980s was attributed to
the cumulative productivity gains achieved through the interrelationship of a number of
characteristics including: dedicated technology, Taylor-Fordist factory and work organization
(with the separation of conception and execution, large-scale plants, and detailed division of work
into routine tasks to produce large volumes of standardized products), the stable relationship
between wage growth and consumption growth, and finally, an investment dynamic based on the
accelerator principle associated with the idea that improvements in technology would be
incorporated in the last vintage of capital (Appelbaum and Batt, 1994: 14).
However, the system was subsequently disrupted by the emergent ability of Japanese
companies to compete on price and quality in the market for products and new technologies. Their
extraordinary performance, and above all Toyota’s lean production model, in the 1980s generated
the fear of foreign domination of the American market (Womack et al., 1991: 274), pushing, on
the one hand, the Massachusetts Institute of Technology (MIT) Commission (Dertouzos et al.,
1989) to investigate the reasons behind the worsening situation of American enterprises compared
to the Japanese, and on the other, the various managers of the largest corporations to solicit public
barriers to the competitiveness of Japanese products, and then to imitate the Japanese
organizational model. The most striking example is the joint venture between General Motors and
Toyota, which gave rise to the extraordinary success of NUMMI (Womack et al., 1991: 278),
based on American technology but with Japanese organisational management. 1, 2 This prototype,
followed by the SATURNO project (also of General Motors), 3 and the proliferation of articles in
the most prestigious management journals that in fact accredited the universality and
transferability of this organizational model to other sectors and countries, 4 changed the
fundamental nature of the system of production of goods and services, going well beyond the weak
attempts to keep the old production system alive, such as those suggested by: a) psychological
theories of organizational behaviour and motivation; b) organizational theories of job enlargement
and job enrichment; c) economic theories of cost cutting through replacing the workforce
employed indefinitely with new ICT technologies and programmable machine tools with the
employment of atypical workers, and finally with the use of production offshoring and domestic
outsourcing. Although these attempts yielded some positive results, they did not lay the
foundations for continuous improvements in products and further improvements in performance;
nor did they improve the ability of companies to respond quickly to rapid changes in market
demand and to compete in markets where quality had in the meantime become a crucial dimension.
The main features of the new production model were two-fold. The first consisted in a deep
reversal of the way of conceiving the organization of activities, which Hammer and Champy
(1993) defined as the sequence of all activities (from planning to production and marketing) that
absorb one or more inputs and create output value for the customer or user. Compared to the
traditional (pyramidal) organization within which the single organizational units (departments
and/or offices) are structured as real silos, with their own hierarchies, the organization by processes
traces the various tasks performed in the different organizational units back to the responsibility
of a manager (process-owner), who relates, on the one hand, with the customer and the market of
the final product as a real supplier, and on the other, with internal support activities as a real
customer. For Coriat (1991), organization - according to the father of Toyotism - is thought of in
reverse, in the sense that it starts from the customer (and demand), and the sequence (with the
kanban system) of activities is activated backwards (from downstream to upstream) aimed at the
realization of the components required. Therefore, each is a customer of the upstream process and
a supplier of the downstream process. In this way, the excess production of components or final
products resulting from incorrect demand expectations is avoided (i.e., just-in-time and zero
stock). The most important complement to this approach today is Enterprise Resource Planning
(EPR) technology that supports not individual functional areas but the entire business process,

1
According to Adler et al. (1998), Toyota’s decision to enter into partnership with GM in the NUMMI project could
be seen as the attempt of Japanese management (followed by other companies) to overcome the trade conflict with
the USA by building plants on American soil. This is where the history of Japanese transplants begins, first in the
USA and then in Europe, which have tended to favour greenfield rather than brownfield investments.
2
In fact, to these two actions is added a third, implemented by the management of multiple firms, aimed at reducing
costs through a clause with two-tier provisions in labour contracts negotiated at the firm level. This clause establishes
different wage scales and working conditions for different groups of employees generally carrying out the same tasks
in the same firm, based on the date they were hired (Ree, 1993; Chaison, 2012).
3
According to its Vice President, this project - all American - should have represented “a new strategy to defeat the
Japanese”; see Pil and Rubinstein (1998: 361).
4
For an extensive bibliography of these works, please refer to the references in Appelbaum and Batt (1994), and
Ichniowski et al. (2000).
from the procurement of materials and/or semi-finished products to internal production, and from
distributors to decentralized offices, up to customer/user care. The relevance of this
“complementarity” (i.e., organizational design according to processes, and new management
technology) is constituted by the fact that firms that attempted to implement the new ICT
technologies without having first reengineered the organization according to the process
perspective achieved modest if not disappointing results. 5
The second characteristic is the versatility and multi-competence of individual workers,
effectively constructed through rotation in different workstations (first within and then between
different production islands/teams), initially with the support of experienced workers: in this way,
the worker is called on to deal with new colleagues (developing interpersonal skills), and
addressing new technical-production situations (developing cognitive skills). The objective is to
build and develop functioning work roles and skills but also carry out the initial maintenance of
the workstation’s technology (whether operational or clerical), knowing in depth its characteristics
(structure, functions, mechanisms of operation of hardware/software and the production process),
and at the same time, ensuring quality control of the individual production phases, identifying the
defects and their causes. 6 All this in fact nullifies the traditional and expensive quality control
system through statistical sampling at the end of manufacturing the product and/or service. The
skills to be built relate not only to the solution of problems and the identification of the causes of
defects, but also to the changes (volumes to be produced, type of product, production methods)
and the problems that arise therefrom. According to Koike (1994), it is precisely through unusual
operations that the worker has the opportunity to develop cognitive skills. Rotation must be
complemented by in-house classroom training and apprenticeship programs that meet the criteria
of Lundall and Johnson’s “know-why” (1994), as well as short-term (bonus) and long-term
(career) incentives aimed at recognizing not the quantities produced but continuous learning and
the number of jobs mastered.

3. WCM: From manufacturing to management

The change in perception and understanding, the evolution of components, methods, and tools
within WCM, as well as their extension to all production sectors (from industrial products to
services) generated new variations, such as HPWO (High Performance Work Organization),
HPWS (High Performance Work System), HPWP (High Performance Work Practices), and finally
again WCM, where M, however, now stands for ‘management’. These new terms entail the risk
of seeing attention reduced to work practices only and/or to management practices, relegating to

5
The same disappointing result was also recorded with regard to investments to activate electronic commerce. In this
respect, however, Hammer and Champy (1993: 6) announced that “in the absence of robust, reengineered processes,
electronic commerce is a nightmare, not a dream”.
6
The quality system along the process is ensured not only by technological devices such as poka-yoke (i.e., error-
proof), but also by diagnostic control by eyes, whose effectiveness requires non-trivial cognitive skills and a significant
degree of involvement.
the sidelines the basic requirements that legitimize the practices in question, namely the
organization of the activity by processes and the constitutive protocols, such as the reduction of
hierarchical levels, the decentralization of responsibilities, and the organization of work by teams.
Currently, the acronym WCM is unanimously intended in a broader perspective than the
original, including the entire value chain (from the initial supplier to the final customer), replacing
the three traditional management techniques, respectively Standard Costing (SC) in favour of
Activity-Based Costing (ABC), Management-by-Objectives (MbO) in favour of Activity-Based
Management (ABM), and Planning and Control (P&C) in favour of Activity-Based Budgeting
(ABB).

4. Problems: Which bundles and what content?

Unfortunately, no consensus exists on which bundles of the most highly performing design and
organizational practices are attributable to WCM. The verifications of effectiveness and efficiency
are conditioned by the quality of the data available to empirical research, leading to several
criticisms, including: identifying the bundles, omitted-variable bias, heterogeneity bias, response
bias, subjective versus objective measures, the role of the respondents to the various questionnaires
submitted to the companies (top-level manager versus multiple respondents at different levels and
in different roles within the organization), longitudinal versus cross-sectional datasets, unit of
analysis (firm, establishment, or workplace), and endogeneity. For a detailed analysis of these
critical aspects see Leoni (2013).
However, three issues deserve to be briefly mentioned here due to their importance for statistical
science:
1) Broad and deep concepts cannot be reliably measured in surveys with a single question asking
whether or not a given work or management practice is implemented: what is required is a series
of specific items, each for single dimensions to correctly represent a multidimensional
phenomenon. Two subsequent problems ensue: i) whether items of a single practice should be
additively summarized to form an index or be treated with factor analysis; ii) the extent to which
the different practices mutually reinforce each other, i.e., they are affected by
‘complementarity’, 7 the bundling of performing practices can only be carried out by means of
exploratory factorial analysis, or better still, confirmatory factorial analysis;
2) Through a survey, the statistician usually detects the presence of two (or more) new work
practices forming a bundle. In this respect, however, empirical research has not yet provided
any stringent indications of whether the presence of this bundle is the result of single
components simultaneously adopted, or conversely, whether the adoption of practices forming
a bundle occurred following precise sequential ordering or not;

7
Two variables are complementary when the application (at higher levels) of one variable increases the benefits of
the application (at higher levels) of the other (Milgrom and Roberts, 1995).
3) Last, but not least: do the bundles of new work practices show their effects on performance
immediately, or do they take time to manifest? The detection of time lags and the indication of
staggered effects that are transient or permanent are crucial issues for the strategic behaviour of
managers. Robust evidence in this domain is still far from attained.

5. Final remarks: Problems and resistance in the paradigm shift

The introduction and diffusion of WCM among companies is equivalent to a paradigm shift,
similarly to new information technologies compared to the previous electro-mechanical. In this
regard, Lester and Piore (2004) indicated that, on a cognitive level, analytical processes tend to
prevail when the alternative results are well understood and can be clearly defined, and are distinct
from each other (and this manifests in the presence of the stability of the technological,
organizational, and managerial paradigm), while interpretative processes excel when the possible
results are not known, that is, when - in the face of uncertainties and paradigm shifts - the task
consists in creating these results and determining their properties. The two processes are somewhat
opposing, but the “distinctive competence” consists in integrating the two processes, i.e.,
considering them separately, but managing them simultaneously. The organizational configuration
that best stimulates and supports this integration is the flexible and evolutionary learning
organization form because individuals, but also single units within the production organization,
relate to each other by processing the information to solve problems and make decisions at the
most decentralized level possible, learning and developing mutual skills, compared to the classic
hierarchy mechanism and the price mechanism.
However, at least in Western Europe, the WCM model has had to engage in a close
confrontation with organizational models that, compared to the American Taylor-Fordist, had
already started to develop some features common to the Japanese model, namely the Swedish
social-technical model (with a team form of work production), the German codetermination and
diversified quality model (with the union’s participation), and the Italian flexible specialization
and districts model (with relational capital among firms). Therefore, it is unsurprising that there
are - at least in Western European countries - different degrees of hybridization in the application
of WCM (from the sphere of production to that of administration, from that of relations with
suppliers to that of industrial relations, and so forth).
In any event, the enthusiasm around the first positive results (on both sides of the Atlantic) soon
transformed the reengineering of processes into a managerial fashion, a panacea for corporate
performance problems. Every action to reduce inefficiencies and optimize along the internal
phases of the single organizational units became reengineering, deforming the concept and the
scope of the original proposal, thus becoming the gateway to numerous failures. As mentioned
earlier, even the introduction of a specific technology such as ERP requires an overall redesign of
the processes, the specific role of the process owner and the work teams, otherwise the investments
will be inefficient. And this is precisely what has often happened. Furthermore, the WCM proposal
was, for a long time, also weakened by the false belief that organization by processes was within
the reach of only medium to large industrial enterprises, relegating industrial SMEs, service
companies, and public organizations to conservatism.
Today, the literature has acquired the basic idea that the driver of the dissemination of new
organisational-managerial practices, associated with new technologies, is constituted by the firm’s
cumulative absorptive capacities. However, the depth of these capacities also depends on a series
of obstacles and resistances, such as: a) the intensity with which the changes that influence the
context are perceived, and the competitive pressure in which the firm operates; b) not all companies
have the necessary financial resources and skills to cope with the significant initial costs that
paradigm shifts entail; c) knowledge in this field is not very codified, and companies can only
access it through specialised consultants or specific organisations; and finally, d) the changes affect
the hierarchical structure and governance system of firms, and as such, involve the entire social
structure (managers, leaders, and line workers), with reactions that depend on the perceptions of
loss of status, professional power and occupational roles that business process reengineering
inevitably engenders.
Awareness of the positive results that WCM firms had with respect to productivity, but also the
resistance, costs, and obstacles that the adoption of new production configurations encountered,
led several European governments, especially in the Centre-North and the European Commission
(see Leoni, 2013, for references) to pursue industrial policies aimed at encouraging organizational
innovations in all fields, while advocating an industrial relations policy based on partnerships
between managers and trade unions. However, the global financial crisis, together with the
sovereign debt crisis, relegated industrial policy to a residual element, in favour of quantitative
easing policies that have not had - at least until now, seven years after the President of the European
Central Bank’s “whatever it takes” (July 2012) - the expected effects on growth and employment.

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