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 / Summer 2007 / Issue 47(originally published by Booz & Company)


Innovation Agility

Toyota’s approach to competitive advantage sounds straightforward and logical. Yet many companies take the opposite approach. When they launch a product development program, they start out by focusing primarily on the cost target rather than the value target. This policy — whether explicit or implicit — hamstrings their ability to create any true competitive advantage. For example, they become incapable of distinguishing the fine product details that customers truly value from haphazardly executed “shovelware” (features that are easy to include but that customers ignore).

Therefore, the first step in an R&D change initiative is a significant focus on customer value, with intense  participation by the most senior executives in product development. Your R&D operation undoubtedly has market research and customer satisfaction inputs, but go back and look frankly at your past launch records. To what extent have these inputs yielded significant knowledge about your customers’ needs? To what extent have you incorporated these inputs into your designs? When you have overruled them, on what grounds have you made those decisions? What questions about your customers’ needs and desires remain unclear at the product development level? Since every company is different, the answers to these questions will vary — but the time you spend answering them should be substantial enough to reveal the information that has not occurred to you so far, or the reasons that improvements have been difficult to implement.

These sessions can also provide an opportunity to rethink your supply chain relationships — with both suppliers and distributors. If you work for an automotive company, for example, to what extent do dealers contribute their customer awareness to your product development considerations? How much insight do suppliers provide into component design, and why do they propose particular features? To what extent can a more knowledge-based sourcing model help you reduce your product development costs and time frame?

Developing Long-Term Talent
The next step will be to reconsider how you develop your engineering staff, from the bottom to the top of the product development process. The best approach will not be the same in every region. Toyota benefits from a rigid labor market in Japan, where turnover is very low, especially in the automotive industry. Fast-track engineers in North America and Europe, where turnover is higher, expect to rotate through a variety of functions as they rise through the ranks. As engineering shortages continue, there is a real danger that high performers will walk away, preventing your company from building and retaining a strong engineering knowledge and experience base. Rethinking your people development strategy thus requires balancing the inclination to build functional capabilities through long tenures with the desire to provide wide-ranging experiences for the engineers. Your resolution of this dilemma will shape the identity of your engineering leadership.

If a single element of the Toyota product development engine ties the entire management process together, it is the shusa. Few Western companies have product development program leaders with similar long-term continuity, technical experience, and business acumen, and fewer still imbue them with the authority to carry a program through to completion on their own terms, and without much interference.

The shusa’s responsibility is wide ranging. As the chief engineer, he or she is responsible for the technical success of the program, making key decisions regarding system specifications and performance. The shusa personally signs hundreds of drawings and is deeply involved in technical decision making. He or she is also the general manager responsible for the critical cost side of the program’s business success — involved in product planning, in market research, in focus groups, and generally in defining the ways a product will create value for the end customer. Although other stakeholders influence the car’s price and volume targets, the shusa’s ability to meet cost/value targets governs the overall success of the project.

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  1. Matthew A. Clark, editor, Mastering the Innovation Challenge: Unleashing Growth and Creating Competitive Advantage (s+b Books, 2006): An omnibus of approaches for improving and expanding a product development or R&D core function.
  2. Jon Gertner, “From 0 to 60 to World Domination,” New York Times Magazine, February 18, 2007: Incisive introduction to Toyota’s unique culture and its view of the future, particularly with hybrids.
  3. Barry Jaruzelski, Kevin Dehoff, and Rakesh Bordia, “Smart Spenders: The Global Innovation 1000,” s+b, Winter 2006: What Toyota has in common with Christian Dior (plus Apple, Adidas, Petrobras, Samsung, Google, and 87 other high-leverage innovators). Click here.
  4. H. Thomas Johnson and Anders Broms, Profit Beyond Measure: Extraordinary Results Through Attention to Work and People (Free Press, 2000): Based on methods developed at Toyota and Scania, this book describes how to substitute ingrained awareness for rote metrics.
  5. Matthew May, The Elegant Solution: Toyota’s Formula for Mastering Innovation (Free Press, 2006): Inside look at the creative process that implements 1 million ideas each year.
  6. James M. Morgan and Jeffrey K. Liker, The Toyota Product Development System: Integrating People, Process and Technology (Productivity Press, 2006): For engineers; dense and detailed.
  7. Taiichi Ohno, Toyota Production System: Beyond Large-Scale Production (Productivity Press, 1988): Shusa-style wisdom from one of the originators of the Toyota production system.
  8. For more articles on innovation, sign up for s+b’s RSS feed. Click here.
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