The Art of Replacing Systems

“Business and human endeavors are systems... we tend to focus on snapshots of isolated parts of the system, and wonder why our deepest problems never get solved.”—Peter Senge

Senge had it right. I have never, ever seen a systemic issue truly resolved with an isolated, tactical solution. Every year, for example, automakers spend millions of dollars on dealership personnel training. Yet nothing really changes.

The U.S. dealership culture is one of the strongest on the planet, and one of the most generally negative, for a simple reason: The financial incentive of an inventory push system paired with a virtually immutable dealer franchise system makes for both an unstoppable force and immovable object.

But when you replace the prevailing system with a better one, you change the world. At the risk of being repetitive, allow me to retell one of my favorite stories.

First, imagine the worst place you've ever worked. The darkest, most depressing, soul-sucking work environment you've ever had the misfortune to inhabit. Got it in your mind’s eye? Now, multiply it by oh, say, 100. That’s how bad the place I’m about to describe was. I know, because I spoke to people who were there.

The year was 1982. It was the year of Jordache Jeans. The year of Wendy’s “Where the Beef?” commercial. And the first full year of Reaganomics.

The place was the General Motors Fremont, California, plant (now the Tesla factory).

Trade friction was developing between the United States and Japan over the volume of import cars. American industry wasn’t exactly booming. Gas prices were high. Economy cars were in demand. A large dent in the U.S. domestic automobile market had been made by fuel-efficient compact cars imported from Japan and Europe. Detroit’s Big Three had pleaded with Washington, D.C. to do something to protect the U.S. GDP.

Meanwhile, the Fremont plant was in a death spiral. Of the 30-odd GM factories, it was by far the worst, in every conceivable way.

There was 20-percent absenteeism. On any given day, a fifth of the workforce wouldn’t show up on any given shift, requiring the hiring of that many more workers. Labor conditions were militant, toxic, even violent, with multiple wildcat strikes and sickouts by the United Auto Workers (UAW). There were 5,000 union grievances on file, which was significant because only 3,000 people worked there. Rampant drug and alcohol abuse required special cleaning crews to clear the liquor bottles and drug paraphernalia from the employee lot after shift change. Rumor had it that to stay inebriated on the job, workers placed coolers of beer and other beverages in the cars as they rolled down the line. Prostitution was available from RVs parked nearby. There were four murders one year, all drug-related.

The plant was barely operational in terms of quality and productivity: double-digit defects in every car, with average hours to assemble a vehicle nearly double that of any other GM plant. Lack of employee pride and confidence was evidenced by the fact that not a single Fremont-built car could be found in the employee parking lot.

Organizationally, there were more than 100 job descriptions, with some 14 levels of supervision. In other words, nothing, including information, flowed freely.

You can’t keep the lights on with conditions like that, so in February of that year, GM closed the factory and laid the entire workforce off. There’s not much you can do with such a horribly bad place, except shutter it.

Or is there?

Enter Toyota, looking to ease trade tensions and test its production system and management approach on U.S. soil with U.S. unions and suppliers. Toyota (along with other Asian and European automakers) knew it had to begin building plants in the United States or face a cap on their growth and profitability.

But building a factory is a huge risk. Forget the millions of dollars and years required to buy land, build a plant, and make it operational; Toyota had to deal with the UAW. Unions didn’t exist in Japan.

So what did Toyota do? It cast about for a joint partner and approached Ford first, to no avail. Then it approached GM with a proposition: reopen the Fremont plant. Which was nuts, if you think about it. Toyota itself was split, the primary concern being giving away production methods and quality processes to a direct competitor.

But then-chairman (the late) Eiji Toyoda saw it as the perfect challenge, the perfect test, and the perfect opportunity to prove the viability and transportability of the Toyota Production System (TPS). It was the chance to see whether people of different cultures with different philosophies and attitudes could adapt to the Toyota system and structure. It was the necessary first step leading to wholly owned Toyota manufacturing in North America.

The partnership formed in 1983, and the plant was to be named New United Motor Manufacturing Inc.—or NUMMI for short.

The deal was crazy, at least for Toyota, and had everything going against it: Toyota would inject cash, manage the plant, and implement TPS. For GM, though, the deal was heaven-sent: A rebadged Toyota Corolla and Chevrolet Prizm were to be the products. GM would get its plant up and running without spending a dime, and gain insight into a market-leading economy car. Win-win, for GM. For Toyota? Questionable at best.

And then, the hiccup. A big burp, really. The UAW raised its powerful hand and declared that it didn’t much matter what the factory was called; it was a UAW plant. The new entity had to use the same workers, the same union, the same facilities, and even almost all of the equipment.

Remember, these were the same folks getting drunk on the job.

It was nearly a deal-breaker. At the end of the day, though, it was the cheapest and most risk-averse experiment Toyota could run. The automaker took a “if we can make it there, we can make it work anywhere” approach, and took the highest road possible.

Toyota hired back 85 percent of the Fremont hourly union workforce, with an eye to weeding out that bad 20 percent or so that had essentially checked out. Nonunion supervisors and managers were broomed.

Two simple rules provided a new social context: First, the goal was not simply doing a job, but rather improving the work. Second, no one would be laid off.

UAW’s 100-plus line job descriptions were replaced by one: team member. Supervisory positions were carved from hourly personnel, effectively flattening the company from 14 levels to two: team leader and group leader. Toyota spent more than $3 million to send 450 new group and team leaders to Toyota City for training in the TPS.

Most of 1984 was spent installing a new system and ramping up operations. Team members were trained in the problem-solving and kaizen practices that team and group leaders had learned in Japan. These team members become the experts in their respective operations.

Wonder of wonders, employees at all levels began engaging. Ideas for improvement were quickly implemented by team members, with successful solutions becoming standardized. All associates were empowered to stop the line at any time to fix a problem by pulling a cord running around the entire facility. Cooperation and confidence replaced coercion and conflict.

Full production began in 1985, and by year’s end of 1986, NUMMI had the highest quality and productivity of any GM plant.

Quality defects dropped from 12 to one per vehicle. Cars were assembled in half the time. Absenteeism dropped to 3 percent. Worker satisfaction and engagement soared. Grievances evaporated, replaced by nearly 10,000 ideas implemented during the first year.

Pride returned to work, and team members would drop their business cards on windshields of NUMMI-built cars they spotted in Bay Area parking lots.

Same people, same union, same equipment. Radically different outcome. All in under two years.

By 1988, NUMMI was an award-winning plant. By 1990, the Toyota Production System was being heralded as the world-class standard for manufacturing operations.

By all accounts, the change was transformational.

Take-home lesson: Change the system, change the structure, change the social context. Then watch the culture of innovation flourish.

A team leader at NUMMI, who there before and after the Toyota transformation, told me this:

“Never in a million years would I tell you factory work is creative. Then Toyota takes over. They teach us their system then say to us, ‘We want you to tell us how to make it better.’ We went from ‘just do your job’ with GM to ‘No one knows the job better than you’ with Toyota. They teach us how to solve problems. They turn us loose in here! They say, ‘Call for help if something’s wrong; stop the line anytime if you have to.’ I was floored. They think I can make their systems better? They’re giving me the power to stop production? That right there changed my life.”

The NUMMI experiment woke up the world to a better way to build cars. James Womack and Daniel Jones wrote about the Toyota Production System in their landmark book, The Machine That Changed the World (Free Press, 2007).

Got what you think is a disruptive innovation? Then make sure you’ve thought through the three governing dimensions that house your solution:
1. Solid structure—policies, procedures, physical environment
2. Strong systems—input, output, processes, patterns
3. Social significance—purpose, principles, people.

These elements give meaning to an innovation by providing the lens of context through which the solution can be viewed. People crave meaning because it helps them make sense of the world.

Great innovation looks deep into each dimension. Words like “structure,” “systems,” and “significance” shouldn’t frighten anyone. Systems thinking isn’t about IQ. Just the opposite. It’s about delivering something intuitive.

It’s about being street smart.

First published Jan. 14, 2014, on the Edit Innovation blog.

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