Summary by Chris Hourigan
Master of Accountancy Program
Japanese Management Main Page |
Relevance Regained Main Page
This book provides more information to support the ever-growing reality that the current accounting system is broken. In this case, the problem is not with external reporting but the force behind production. Cost accounting systems have ruled supreme since WWII, controlling almost every part of the production process, but somehow we still fell short of the Japanese. This book, in parts, chronicles the evolution of The Big Three American car manufactures and Toyota after the war. In an ever-increasing world of diversity, these two groups approached the problem quite differently. The Big Three focused on economies of scale to deal with the increased cost of producing variety and Toyota relied on the details of production.
The authors believe that there is harmony in nature and therefore mimicking nature would help achieve harmony in the workplace. Putting more emphasis on the actual work product and not on the process itself would go a long way in achieving this. The authors believe that Toyota has achieved this in their plants, and it is the reason why they are so successful.
Chapter One - Lessons from the Rouge
"If our established ways of organizing work around centralized control and quantified targets is problematic, what are the practical alternatives? That is the main question this book tries to answer by introducing a new management approach, "Management By Means" (MBM) as opposed to the more conventional approach, "Management By Results" (MBR). To demonstrate this, Toyota is compared to the Big Three American auto manufacturers, Toyota using MBM and the Big Three, MBR.
The chapter is titled "Lessons from the Rouge" because of the modeling these two groups took from Henry Ford’s Model-T plant in River Rouge, Michigan. The Big Three saw processes of working on one product continuously and to full capacity in order to reduce cost – economies of scale. Toyota also saw continuous work, but not in throughput, with variety in mind. The Big Three used, what amounted to, unlimited resources to achieve economies of scale. Toyota used resources on hand, i.e., limited, to form the continuous manufacturing process. This made for less waste and the ability to change each car in the same production line with no more costs. This is the reason why Toyota has outperformed the Big Three combined. They both have all the ingredients but emphasize different goals. The Big Three emphasize bottom-line profit, which, when broken down, is very arbitrary and has very little meaning. Toyota emphasizes the process, which includes bottom-line cost, but also is flexible to include different customer orders. The difference is quite plainly a difference in thinking. (See some graphics and additional notes on this point).
Chapter Two - Relationships (MBM) versus Quantity (MBR)
The author relates "Management By Means" to nature. That all living beings have an order to their lives and "Management By Means" tries to mimic this order. "Management By Results" is the antithesis of "Management By Means". "Management By Results" arbitrarily tries to push production through the system, whereas "Management By Means" pulls resources together and completes the project with the least amount of resources consumed and the least amount of effort extended. The authors believe that there is an even flow to life and this too can be achieved in manufacturing. "Management By Results" uses means to achieve an end, but "means are not subordinate to ends – they are ends in the making." With "Management By Results" people try to manipulate each process to achieve a quantitative goal. With "Management By Means" the emphasis is on the work not on manipulating the numbers. "Management By Results" also views profit and shareholder value as the reasons for existing, but "Management By Means" does not. It is merely a necessity for survival. The real goal is harmony in relationships between workers, customers, and the environment.
Chapter Three - Product to Order
Many visitors that come to the Toyota plant are amazed but confused about the process. They see a very clean and quiet environment compared to the Big Three, but they don’t see any secrets. Visitors often say that they already incorporate all the pieces that Toyota is using, so what is the secret? The missing piece is the production itself. There is a distinct flow to production, a steady, even pace. There are tools to facilitate this, such as the "andon cord", but mostly it is a different approach to manufacturing itself, a harmonious flow. By focusing on the details of production, Toyota broke down the production process into segments, which can handle variants of products without increasing costs or the use of economies of scale. Again, their emphasis is on continuous improvement of the process not on any cost accounting system. (See the Spear & Bowen summary for more on Toyota's system).
Chapter Four - Design to Order
This chapter discusses the union of the customer with the producer. A good way to reduce waste is to produce only those products that are wanted. Another way to reduce costs is to produce a variant of the product that the customer wants with the least amount of changes needed. That is where modularization comes into play. Producing one part that can be interchanged with a line of products reduces or spreads the costs. The trick is to design products around parts; this isn’t as it sounds. New models are born from variations of the old ones, models in which the same parts can be used. Giving flexibility to the production line to produce variety is where all of this emanates.
Chapter Five - Assess to Order
How do we move managers’ way of thinking away from traditional cost objectives? Give them an alternative, activity-based costing. ABC is used but not in the big picture. It is broken down into order-lines analysis. The profitability of a company can be drawn from the profitability of the parts. A company is a living entity that needs all its parts working together to survive. That is why we can look at the parts to determine the well being of the company. This approach is called order-line analysis. Most companies today break down the processes of production and therefore make them separate from each other. This does not promote growth through innovation. Order-line profitability analysis forces mangers to see the relationships of all the parts, making a whole. This view will help managers focus more on helping the relationships flourish, which in turn will make the company grow.
Chapter Six - Results Are in the Details
Details are the key to success. In order to pay attention to and design for the details there must be a change in thinking. A company is a living system and like all living systems, is governed by 3 principles:
1. Self organization,
2.
Interdependence, and
3. Diversity.
"Increasing these three principles must provide the basis for management practices in modern business organizations." The final goal is to harmonize the company so that all parts are working together. Quantification with "Management By Results" requires "separating into parts" the process and therefore disrupting harmony.
Chapter Seven - What's Natural Comes Hard
The authors try to describe the natural process of things in nature and how we should strive to mimic them in business, but often it is difficult to change a process or the way we have been doing things. It is almost like we had to break from our normal tendencies in order to have the systems we have in place today. In order to succeed, we must change these systems to favor more of the natural order of things. This must be done not just for the success of business but also for the environment around us.
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Related summaries:
Hammer, M. 1990. Reengineering work: Don't automate, obliterate. Harvard Business Review (July-August): 104-112. (Summary).
Hammer, M. 2001. The superefficient company. Harvard Business Review (September): 82-91. (Summary).
Hammer, M. 2007. The process audit. Harvard Business Review (April): 111-123. (Note).
Johnson, H. T. 2006. Sustainability and "Lean Operations". Cost Management (March/April): 40-45. (Summary).
Johnson, H. T. 2012. A global system growing itself to death - and what we can do about it. The Systems Thinker (May): 2-6. (Summary).
Martin, J. R. Not dated. Profit Beyond Measure graphics and notes. Management And Accounting Web. JohnsonBromsGraphicsNotes.htm
Martin, J. R. Not dated. Russell Ackoff quotes and f-laws. Management And Accounting Web. RussellAckoff.htm
Martin, J. R. Not dated. Russell Ackoff: What is a system? Videos. (Note).
Martin, J. R. Not dated. The Beer Game. Management And Accounting Web. (Summary).
Senge, P. M. 1990. The Fifth Discipline: The Art and Practice of the Learning Organization. Doubleday Currency. (Note).
Spear, S. and H. K. Bowen. 1999. Decoding the DNA of the Toyota production system. Harvard Business Review (September-October): 97-106. (Summary).
Toyota Public Affairs Division and Operations Management Consulting Division. 1998. The Toyota Production System: Leaner Manufacturing for a Greener Planet. The Toyota Motor Corporation. (Summary).