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strategy and business
 / Winter 2005 / Issue 41(originally published by Booz & Company)


Recent Research

This is rooted in four distinct Toyota capabilities. First, the company designs work as a series of nested experiments, in which each element of a larger process is broken down into smaller ones, so that success is likely and failure immediately identified as a problem-solving opportunity. Second, Toyota improves work through frequent, high-speed, rapid-feedback experiments that enhance performance and create new knowledge. Third, problems are solved collaboratively. Finally, and most importantly, management’s primary task is to develop broad-based capabilities for the design and improvement of work and sharing of knowledge. In short, says Professor Spear, Toyota is the ultimate learning machine.

GM’s inability to keep up, the author argues, is rooted in four corresponding failures. First, GM implemented lean manufacturing tools without attention to the self-diagnostic element that is integral to Toyota. Second, the automaker allowed people to work around problems rather than addressing them immediately. Third, GM failed to use collaborative problem-solving processes. Finally, GM senior management delegated — or even abdicated — improvement and capability development to middle managers and supervisors, instead of recognizing it as a core managerial task.

The last point is especially telling. Professor Spear shadowed a senior Toyota plant manager, Alan Muswell. He describes how Mr. Muswell visited each improvement project every two weeks so teams could update him on progress with the problem they were trying to fix. Mr. Muswell then asked what Professor Spear says is the quintessential TPS manager question: “What did you learn?”

Competing with Toyota, Professor Spear concludes, “is like running a race in which you repeatedly trip over your own untied shoelaces while your competitor has not only tied his after the first stumble but is continually improving his stride, cadence, rhythm, and form. You chase but he continues to pull away.”

Temp CEO (or Not)
Ray Fisman ([email protected]), Rakesh Khurana ([email protected]), and Matthew Rhodes-Kropf ([email protected]), “Governance and CEO Turnover: Do Something or Do the Right Thing?” Harvard Business School Working Paper no. 05-066. Click here.

In the early 1990s, a group of Citicorp shareholders demanded that the board remove CEO John Reed from office. The reason for the clamor was the financial-services giant’s recent weakness, borne of economic recession in the United States, a Brazilian currency crisis, nonperforming domestic real estate loans, and highly leveraged transactions. The board refused to capitulate, John Reed stayed, and the bank’s performance recovered.

Mr. Reed’s case and many other executive-suite conflicts are the subject of a new study by Ray Fisman, Meyer Feldberg Associate Professor of Business at Columbia University’s Graduate School of Business; Rakesh Khurana, an associate professor at Harvard Business School; and Matthew Rhodes-Kropf, an associate professor of finance and economics at Columbia University’s Graduate School of Business. They explore the conditions that led to executive turnover — or retention — at the largest banks, financial-services firms, retailers, and transportation companies in the United States between 1980 and 1996.

The authors’ key finding is that there are long-standing — perhaps inevitable — trade-offs at work between boards and stockholders when CEOs are under fire. These trade-offs lie at the heart of the continuing debate about the appropriate allegiance of boards as they manage corporate activities.

The authors cite John Reed’s case as an example of an increasingly common situation that pits ownership against executive power. Though shareholder voices are becoming louder and more influential in many companies, their absolute power is limited, because CEO hiring and firing is delegated to the board of directors. The board, empowered to hire and fire the CEO, has an obligation not just to represent the shareholders but also to consider what’s best for the company in the long term. In the case of Citicorp, the board reasoned that responsibility for Brazilian economic instability could not credibly be laid at any CEO’s door, and that Mr. Reed was still the best leader for the job. Thus, the board rejected the shareholder case.

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