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 / First Quarter 2002 / Issue 26(originally published by Booz & Company)


What Are the Measures That Matter?

That set Professor Johnson off on his own quest. He began to study Japanese and American quality methods, system dynamics, and management ideas rooted in the “new sciences” of quantum physics and evolutionary biology. (For disclosure’s sake, I should add that this path led him to become a contributor to a book I edited, The Dance of Change: The Challenges to Sustaining Momentum in Learning Organizations, with Peter Senge and others.) By September 1992, Professor Johnson had changed his views enough to publish an article in Management Accounting called “It’s Time to Stop Overselling Activity-Based Concepts.” The result of systems like ABC, he wrote, was “unstable processes, unhappy customers, and loss of jobs.” Professor Kaplan responded only two months later in the same journal, in the form of a Socratic dialogue. “Some supporters,” he wrote, obviously meaning Professor Johnson, “have developed a mystical faith in the ability of [quality improvement] to solve virtually all managerial and organizational problems.”

The battle lines were drawn. The two stopped speaking, and in their next books — Relevance Regained: From Top-Down Control to Bottom-Up Empowerment (Simon & Schuster Inc., Free Press, 1992) by Professor Johnson, and Cost and Effect: Using Integrated Cost Systems to Drive Profitability and Performance (Harvard Business School Press, 1997) by Professor Kaplan and Professor Cooper — they each devoted a chapter to excoriating the ideas of the other.

Soon thereafter, Professor Johnson was invited to study the Toyota system first-hand, particularly in its new plant in Georgetown, Ky. In Profit Beyond Measure, he describes his findings in detail. The plant produces about 500,000 cars per year, employing about 7,500 people to do so. Unlike most automakers, Toyota doesn’t ask its dealers to guess what the most popular packages of options and styles will be and produce its wares accordingly. Instead, it assembles each car to match an individual customer’s specification in real time.

Although Toyota makes some use of quantitative indicators of performance — such as first-pass throughput rates, defect rates, and team leader on-line work rates — they have little to do with operational decision making. Procedures on the shop floor are defined largely by team members and team leaders; everything around them is designed to improve the alertness, interest, and well-being of people working there. The plants are remarkably clean and quiet (as such observers as the auto-industry analyst Maryann Keller have noted). People on the line switch stations every two hours to avoid stress and boredom. A Toyota ergonomics engineer once told Professor Johnson that “coming off a shift should feel like finishing a tough but energizing workout.”

Each station is essentially the supplier of the next station in line (its “internal customer”), providing the components the next station needs at exactly the appropriate moments. This, in turn, means people at each station must be aware of the flow of product through the entire plant. They achieve this awareness because the pace of the assembly line is not set to meet a target based on cost or other financial considerations. It ebbs and flows with the pace of customer demand. (Toyota people call this rhythm “takt time,” after a German word for musical meter that the company borrowed during the 1930s.) Machines and workers almost effortlessly retune themselves with every new product variation. People are attuned to notice inefficiencies — the kinds that might show up weeks later as a number on an Activity-Based Costing spreadsheet — and deal with them immediately.

Cords near every station can be pulled when something “feels” wrong. When a cord is pulled, it does not cause the whole line to shut down (as it probably would in a typical plant, with supervisors fretting about the thousands of dollars lost during the downtime). Instead, support staff members rush to investigate; a part of the line then may halt while activity goes on around it.

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