Tag: Toyota

The Joys and Perils of Dancing on a Knife’s Edge

February 25th, 2011 — 11:09am

The tumultuous crowds that brought down a dictator in Egypt had an unintended impact far from their homeland: they drowned out – rightfully! – the announcement of a strategic partnership between Nokia and Microsoft. I admire the Nokia I researched; yet I acknowledge it is currently in deep trouble. I have long disdained Microsoft for its product quality and its reliance on monopolistic power instead of innovation (sole exceptions: Xbox and Kinect; and yes, I admit that Office 2011 for the Mac is far better than iWorks!). So, what do I think of this alliance?

A key “prerequisite” question is: Do I still believe the ideas in The Spider’s Strategy? Absolutely! Toyota’s “unexpected acceleration” fiasco and its resultant recalls of millions of cars didn’t discredit Lean Enterprise. Why then, should Nokia’s recent challenges discredit Networked Organizations? Indeed, Nokia got into trouble because in the key area of product innovation, it stopped applying the ideas that powered its 17% compounded annual organic growth rate (in revenues and operating profits) from 1995 to 2006.

Nokia violated a subtle rule embedded in my third Design Principle, “Value and nurture organizational learning.” It used to learn rapidly by setting seemingly impossible targets that demanded the periodic reinvention its business model. Simultanneouly, to keep control, it insisted its managers follow a “no surprises” policy. This brilliant rule is the proverbial knife’s edge. Balance well, and you can pull off miracles. Tilt toward “big risk” and you can lose your shirt. Tilt toward “no suprises” and you will bring innovation to a screeching halt. As it grew, Nokia made the mistake many other large companies have: it tilted toward “no surprises.” So, unlike Apple, it didn’t build a network of complementary product makers to buttress its proprietary Symbian software. Unlike Google, it didn’t attract a different type of sustaining network by making Symbian open source – until it was too late.

The alliance with Microsoft was in the cards from the day Nokia’s Board appointed Stephen Elop CEO. Nokia’s press release spoke of a strategy to “build a new global mobile ecosystem” with Windows Phone software at its core; “capture volume and value growth to connect ‘the next billion’ to the Internet in developing growth markets;” and make “focused investments in next-generation disruptive technologies.”

The second element – a continued focus on markets like India and China – is an key, though the notoriously developed-world-focused financial analysts may not care. Apple has ignored these markets and Windows still has a true monopoly among operating systems. These facts, plus Nokia’s still dominant marketshare there, give the alliance a strong base on which it can build; Nokia can instantly create volume for the Windows Phone and a seemless integration with Wintel computers may give it an edge over low cost Chinese phone makers. At the very least, this element will buy the alliance time; at best, the “next billion” is a huge market. That’s where the first element is also critical.

To bring the alliance value, the goal of building a mobile ecosystem must truly assimilate the lesson of a recent The New York Times story about a start-up company that hoped to build a business around enabling group dates. The founders noted that the site’s users were mostly South or East Asians, but filed that fact away as “Interesting, but Unimportant.” Success came only when they reluctantly acknowledged that group dating wouldn’t fly in the US and shifted their focus to India. The world, as Thomas Freidman said, is flat. But that doesn’t mean people’s needs are the same everywhere. That’s why the word “global” in the language of this strategic element is troubling. Its use may seduce financial analysts, but unless an ecosystem to specific markets, it won’t amount to a hill of beans. At one time Nokia knew this lesson; it had had anthropologists in Indian villages whose work strengthened its market position there. Does it still remember that lesson and can it convince a monopoly to learn it too?

The third element is critical for the long term and most troubling: Will two companies who haven’t created any disruptive technology recently be able to do so in the near future? Nokia’s Chairman Jorma Ollila had championed the Networked Organization philosophy and as CEO, had managed its phenomenal growth. I could make a cogent case that he and the Board had no choice but to create the alliance with Microsoft. (Which would explain why they pursued Mr. Elop in the first place.) Now, he must ensure that Mr. Elop realizes that his most critical tasks are (1) putting into leadership positions those within Nokia who are still capable of dancing gracefully on a knife’s edge and (2) using his deep knowledge of Microsoft to convince Mr. Ballmer to do the same. Then, and only then, will the alliance succeed. If so, I may one day become once again an enthusiastic customer of both companies.

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The Michael Crichton Strain

January 29th, 2010 — 11:01am

Michael Crichton was the author who ensured that English speaking children know – and can perfectly pronounce – the names of at least ten dinosaurs. I read the first of his 26 novels, The Andromeda Strain, in 1976 and several others – including the ones about dinosaurs, Jurassic Park and The Lost World – in subsequent years. He also created the extremely popular TV show ER; I didn’t see even a single episode of the show. He passed away in November 2008.

I liked reading his books because many, if not all, of them dealt with the complexities of a world I knew well: the intersection of advanced technology and business. However, I am definitely not a “Crichton groupie;” I stopped reading him in the early 1990s, because I felt that his 1992 book, Rising Sun, had racist undertones. This decision means that Mr. Crichton may well have held positions about which I know absolutely nothing.

Mr. Crichton’s writings introduced me to an extraordinarily powerful idea: humans are creating ever more complex technological systems without truly understanding their implications. They think they can completely control these, but the reality is they can’t. For example, consider the following extract from a speech on environmentalism, as it is reported on “Michael Crichton, The Official Site”: “Most people assume linearity in environmental processes, but the world is largely non-linear: it’s a complex system. An important feature of complex systems is that we don’t know how they work. We don’t understand them except in a general way; we simply interact with them. Whenever we think we understand them, we learn we don’t. Sometimes spectacularly.”

I couldn’t help but be reminded of this idea when the news about Toyota’s ever-expanding recall came into the public spotlight. How could a company so admired and emulated falter so badly? One explanation is that the Company’s relentless pursuit of growth over the last decade caused it to take its eye off quality. Toyota’s new CEO, Akio Toyoda, shares this view; when he got the job in October 2009, he apologized profusely in public for the quality problems that Toyota had experienced. As time would tell, those were nothing compared to what’s happening right now. (I will return to this explanation in a future post.)

A second possible explanation drove me to introduce Michael Crichton here: we are building cars so complex that we really don’t understand how they function and why they do what they do. So far, no one knows what ails the Toyotas. Is it a mechanical problem with the accelerator pedal made by the US company CTS? These pedals are being replaced not just on Toyota but also on other cars. But even Toyota doesn’t think this is the key explanation. Mechanical problems are generally easy to diagnose because we can actually see what’s wrong. The “improper floormats” explanation is also, at best, a secondary one. Right now, the focus seems to be on the electronics that control acceleration – and possibly, even the embedded software. Yet no one has yet figured out what this problem is. So, unless the real story has not been made publicly available (which is always possible), this explanation is still speculation; perhaps informed speculation, but speculation nevertheless.

Many years ago, I had started writing – and then abandoned – a book on manufacturing. In that effort I had assailed the belief that some software companies popularized in the 1990s: “Get it 80% right and ship.” Customers will tell you what is wrong – and you can fix it then. An incredibly simplistic belief in the power of being first to market drove this view. I hope it gets buried soon, for Apple is only the latest company to show that first mover advantages are highly overrated.) Couple this view with Mr. Crichton’s lesson and the dangers of following it become immediately obvious.

In 2006/2007, I was writing The Spider’s Strategy. I pointed out that the holy grail of modern product development – “make it modular” – had major limits. Companies like modularity because it gives (1) the flexibility to use the same parts in different places and (2) the ability to outsource design and manufacturing work in discrete chunks. I cited examples of product failures that had afflicted some of the best known brands in the world, including Toyota and argued that the weakness of this thinking lay in the electronics and software. This limitation made it essential for companies to collaborate closely with their design and manufacturing partners.

Toyota understood this fact better than most other companies. This is why it focused on building strong partnerships with its suppliers. Those partnerships had helped it make the jump from a Lean company to a networked company. It is truly sad that along the way somehow its management unlearnt this critically important lesson.

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“Stargazer, you with your head in the heavens …”

November 28th, 2009 — 2:05pm

Around this time every year, American manufacturers and retailers fill the airwaves with countless advertisements. A couple of days ago, I saw many from Toyota, touting the legendary quality of its cars. But for the first time in a long while these sounded hollow. Toyota has just announced yet another recall – affecting four million cars – for possible uncontrollable acceleration. The problem has resulted in a few deaths. I immediately told my wife, “This is Toyota’s “Audi moment.”

In the 1980s, Audi’s slogan was “The art of engineering” and its cars were doing very well in the premium/luxury segment. One year, some customers complained about accidents at start up; the cars moved before the drivers wanted to, often causing accidents. Audi denied the problem and blamed driver error. The media picked up the story and ultimately, the US government mandated a new safety feature for all cars: one cannot shift the gear to ‘Drive’ or ‘Reverse’ without having a foot on the brake. But by that time, Audi’s sales had plummeted – if I recall correctly – from about 50,000 a year to under 10,000. Audi’s reputation didn’t recover for many years.

I have long admired Toyota’s management prowess, and praised some of its policies and experiences in The Spider’s Strategy and in this blog. However, Toyota has clearly not learnt from Audi’s experiences. It first denied the problem and then blamed its customers. When it – very belatedly – acknowledged the issue, it said that the accelerator pedal was getting stuck on the mat and said that it would retrofit the existing pedals.

Toyota’s response is far from appropriate. It won’t be able execute the retrofitting till April 2010. What are the legions of Toyota customers supposed to do till then? Help slow global warming by not driving? Moreover, not everyone is convinced that the pedals are at fault; many blame a software malfunction. (This isn’t far fetched; in The Spider’s Strategy, I described earlier software problems in Toyota – and other high end cars – as one of the motivations for networked companies.) Toyota disagrees sharply – but nevertheless, is changing the software in some cars.

Toyota’s advertisements, reminded me of a Neil Diamond song: “Stargazer, you with your head in the heavens / You’ll never get by walkin’ that high off the ground / Moon dreamer, I’ve been around and I’ve seen it / The higher you get – the harder they let you down / You pay your dues, it seems forever /And if you’re clever you may be in for a while / Then you’re out of style/” I wondered why its executives didn’t realize that since quality is their claim to fame, a plausible challenge of that capability can be devastating. I also mused about the appropriateness of focusing advertisements on quality while a major recall is the lead news item on the evening news. Finally, I pondered why good executives don’t understand that blaming large numbers of customers is always a losing strategy in a crisis. Perhaps it is because they forget – with their “head in the heavens” – that they can’t afford to be “walkin’ that high off the ground.”

Only time will tell if Toyota is “out of style” now, having been “in for a while” because of its earlier “cleverness.” Recently, its new CEO, Akio Toyoda, apologized abjectly to shareholders and customers for Toyota’s many recent failings and vowed to return to policies that had made it one of the most admired companies in the world.

Great (Adaptive) companies do make mistakes, just like lesser ones. What distinguishes them is what they do next. They acknowledge their mistakes, quickly correct them and determine how to obviate the entire class of such mistakes in the future. Mr. Toyoda, the ball’s in your court.

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