13
IDEAS AT WORK The company that's famous for integration also excels at building functional expertise. Another Look at How Toyota Integrates Product Development C HALLENGED BY WORLD-CLASS competitors, manufacturing companies in the United States have undergone a renaissance in the last decade. The renaissance started on the shop floor with an emphasis on built-in quality, the elimination of waste, and faster throughputs. But attention quickly turned upstream to product development, where Japa- nese companies were outperforming byDurwardK. Sobek, II, Jeffrey K. Liker, and Allen C. Ward U.S. competitors on nearly every measure: speed to market, design quality, product-design manufac- turability, cost, and productivity. Ohservers concluded that the key to Japanese success, and U.S. industry's weakness, was integration-both between product design and manu- facturing-process design, and with marketing, purchasing, finance, and other business functions. Durward K. Sobek, II, is an assistant professor of mechanical and industrial engineering at Montana State University in Bozeman. Jeffrey K. Liker is an associate professor of industrial and opeiations engineering at the University of Michigan in Ann Arbor. Allen C. Ward is an adjunct researcher at the Uni- versity of Michigan and the president of Ward Synthesis, an engineering con- sulting company in Ann Arbor. 36 PHOTOS BY MORGAN SEGAL

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Page 1: Toyota PDS

IDEAS AT WORK

The company that's famousfor integration also excels

at building functionalexpertise.

AnotherLook at How

ToyotaIntegrates

Product Development

C HALLENGED BY WORLD-CLASScompetitors, manufacturing

companies in the United States haveundergone a renaissance in the lastdecade. The renaissance started onthe shop floor with an emphasis onbuilt-in quality, the elimination ofwaste, and faster throughputs. Butattention quickly turned upstreamto product development, where Japa-nese companies were outperforming

byDurwardK. Sobek, II,

Jeffrey K. Liker, and

Allen C. Ward

U.S. competitors on nearly everymeasure: speed to market, designquality, product-design manufac-turability, cost, and productivity.Ohservers concluded that the key toJapanese success, and U.S. industry'sweakness, was integration-bothbetween product design and manu-facturing-process design, and withmarketing, purchasing, finance, andother business functions.

Durward K. Sobek, II, is an assistant professor of mechanical and industrialengineering at Montana State University in Bozeman. Jeffrey K. Liker is anassociate professor of industrial and opeiations engineering at the Universityof Michigan in Ann Arbor. Allen C. Ward is an adjunct researcher at the Uni-versity of Michigan and the president of Ward Synthesis, an engineering con-sulting company in Ann Arbor.

36 PHOTOS BY MORGAN SEGAL

Page 2: Toyota PDS

IDEAS AT WORK

A great many companies attackedthe issue bead on. Typical solutionswere sucb product-developmenttools as quality function deploy-ment and Taguchi metbods. Compa-nies also introduced organizationalsolutions; tbose solutions rangedfrom keeping the basic functionalorganization intact and assigningpeople to temporary project teams todisbanding the functional organiza-tion altogetber in favor of organizingaround products, as Cbrysler did inthe early 1990s. (Here we use tbe termfunction broadly to mean the vari-ous groups of specialized expertiserequired to make new models work -including the engineering special-

ties witbin the design process, suchas electrical, body, or test engineer-ing, as well as otber business func-tions, such as manufacturing andmarketing.)

The new solutions bave brougbtsubstantial improvements to thecompanies and dramatic results intbe marketplace. But tbey havealso created problems of their own.Cross-functional coordination hasimproved, but at tbe cost of depth ofknowledge within functions, be-cause people are spending less timewitbin their functions. Organiza-tional learning across projects hasalso dropped as people rotate rapidlythrough positions. Standardization

across products bas suffered becauseproduct teams bave become auton-omous. In organizations that combinefunctional and project-based struc-tures, engineers are often torn be-tween the orders of tbeir functionalbosses on the one band and the de-mands of project leaders on the otber.As these new problems take theirtoll, U.S. companies are beginningto see the effectiveness of their prod-uct-development systems plateau.More important, that effectivenessseems to have leveled off far sbort oftbe best Japanese companies.

This article explores how one ofthose companies, Toyota, managesits vehicle-development process. We

HARVARD BUSINESS REVIEW July-August 1998 37

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IDEAS AT WORK HOW TOYOTA INTEGRATES PRODUCT DEVELOPMENT

Studied Toyota's process for fiveyears through in-depth interviews atall levels of management. Interest-ingly, we found that in many waysthe company does not resemhlewhat is often considered the modelof Japanese product development - ithas maintained a functionally hasedorganization while achieving its im-pressive degree of integration, andmany of its practices are actuallysimilar to those that U.S. companiesemployed during their manufactur-ing prime earlier in this century.

We can group Toyota's managerialpractices into six organizationalmechanisms. Three of them are pri-marily social processes: mutual ad-justment, close supervision, and in-tegrative leadership from productheads. The other three are forms ofstandardization: standard skills,standard work processes, and designstandards. Alone, each mechanismwould accomplish little, but everypiece has its own role and at thesame time reinforces the others, un-like many of the sophisticated toolsand practices at companies in theUnited States, which tend to be im-plemented independently.

Together, the mechanisms giveToyota a tightly linked product-development system that achievescross-functional coordination whilestill building functional expertise.This balance allows the company to

Toyota combines a highlyformalized system with twiststo ensure that each projectis flexible and benefits fromother projects.

achieve integration across projectsand over time, as well as withinprojects. U.S. companies have con-centrated on bringing the functionstogether within projects, but a single-minded focus on that goal can actu-ally undermine attempts to shareinformation across projects. Cross-functional teams, for example, workwell within individual projects, butthe temporary, personal nature ofthese teams makes it hard for them

to transmit information to teams onother projects.

Toyota, by contrast, seems to go tothe opposite organizational extreme.It relies on highly formalized rulesand standards, and puts limits on theuse of cross-functional teams. Suchrigid policies can have enormousdrawbacks. To avoid those draw-backs, Toyota has added a numher oftwists to ensure that each projecthas the flexibility it needs and stillbenefits from what other projectshave learned. The result is a deftlymanaged process that rivals thecompany's famous production sys-tem, lean manufacturing, in effec-tiveness.

Coordination Based onWritingOne of the most powerful ways tocoordinate one's efforts with thoseof people in other functions is to talkto them face to face. In this manner,each party gets the other's point ofview and can quickly make adjust-ments to find common ground. Thismutual adjustment often takes theform of a meeting: a product designerand a manufacturing engineer, forexample, get together to discuss theeffects that a proposed design for aparticular car body would have onthe cost of production.

Direct contact between the mem-bers of different functions is cer-

tainly important-somesay it is the essential in-gredient in getting func-tional groups that havetraditionally heen at oddsto work together. Indeed,many observers, manag-ers, and engineers claimthat face-to-face interac-tion is the richest^ mostappropriate form of com-

munication for product develop-ment. Numerous companies nowcolocate functional experts so thatinteraction can occur with muchgreater ease and frequency. Oftenthese companies have done awaywith written forms of communica-tion hecause, as some claim, writtenreports and memos do not have therichness of information or interac-tive qualities needed for productdevelopment.

Meetings, however, are costly interms of time and efficiency, andmeeting time increases with coloca-tion. Meetings usually involve lim-ited value-added work per person,and they easily lose focus and dragon longer than necessary. Engineersin companies we've visited oftencomplain of not having enough timeto get their engineering work donebecause of all the meetings in theirschedule.

Toyota, by contrast, does not co-locate engineers or assign them todedicated project teams. Most peo-ple reside within functional areasand are simply assigned to work onprojects-often more than one at atime - led by project leaders. By root-ing engineers in a function, the com-pany ensures that the functions de-velop deep specialized knowledgeand experience.

In lieu of regularly scheduledmeetings, the company emphasizeswritten communication. When anissue surfaces that requires cross-functional coordination, the proto-col is first to write a report that pre-sents the diagnosis of the problem,key information, and recommenda-tions, and then to distribute thisdocument to the concerned parties.Usually, the report is accompaniedby either a phone call or a shortmeeting to highlight the key pointsand emphasize the importance ofthe information. The recipient is ex-pected to read and study the docu-ment and to offer feedback, some-times in the form of a separatewritten report. One or two iterationscommunicate a great deal of infor-mation, and participants typicallyarrive at an agreement on most, ifnot all, items. If there are outstand-ing disagreements, then it's time tohold a meeting to hammer out a de-cision face to face.

In such problem-solving meet-ings, participants already under-stand the key issues, are all workingfrom a common set of data, and havethought about and prepared propos-als and responses. The meeting canfocus on solving the specific prob-lem without wasting time bringingpeople up to speed. By contrast, atmany U.S. companies, attendeesoften arrive at meetings having done

38 HARVARD BUSINESS REVIEW fuly-August 1998

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IDEAS AT WORK HOW TOYOTA INTEGRATES PRODUCT DEVELOPMENT

little or no preparation. They canspend the first half of the meetingjust defining the issue, and responsesare shoot-from-the-hip reactions toa problem that people have had littletime to think about.

Toyota takes its focused style ofmeeting quite seriously. One engi-neer we talked to showed us hisschedule for the day, which includedtwo meetings at separate times withthe same group of people. Whenasked why he would schedule sepa-rate meetings with this group, heexplained that they needed twomeetings to discuss two distinctproblems. It was important not toconfuse the issues by combiningthem into one meeting.

Once the writer of the originalreport has consulted with all inter-ested parties, he or she writes a finalversion of the report that presents allsides of the question. The overallreporting process therefore has twohenefits. First, it documents andsummarizes analysis and decisionmaking in a convenient form for therest of the organization. Second, andmore important, it forces engineersin every function to gather opinionsfrom other functions regarding theramifications of the changes they areproposing.

Twist: Although Toyota often re-lies on written communication asthe first line of attack in solvingproblems, it does not suffer from thevoluminous paperwork we associatewith bureaucracy. In most cases, en-gineers write short, crisp reports onone side of size A3 paper (roughlyII X 17, the largest faxable size). Thereports all follow the same format sothat everyone knows where to findthe definition of the problem, the re-sponsible engineer and department,the results of the analysis, and therecommendations. The standard for-mat also helps engineers make surethey have covered the important an-gles. The result is a clear statementof a problem and solutions that isaccessihle not only to people withina particular project hut also to thoseworking on other projects.

Writing these reports is a difficultbut useful skill, so the companygives its engineers formal training inhow to boil down what they want to

communicate. Supervisors see to itthat engineers do the appropriategroundwork to ensure that all perti-nent views are taken into considera-tion. Toyota has also created a cul-ture in which reading these reportsis highly valued and essential to do-ing one's joh well. Indeed, we heardahout a certain Toyota executive whorefused to read any report longer thantwo pages.

Mentoring SupervisorsIn product development, supervi-sion traditionally took place withinindividual functions. Electrical engi-neers, for example, were supervisedhy other electrical engineers becauseonly they fully understood the workinvolved. Recently, some U.S. com-panies have experimented withcross-functional team-hased organi-zations in order to force engineersto think beyond the needsof their own function.Chrysler, for example, isorganized around productplatforms rather thanfunctions, and the plat-form team leader heads allproduct engineering inthe platform.

Toyota, however, has not forgot-ten the value of instructive supervi-sion within functions. Supervisorsand higher-level managers aredeeply involved in the details of en-gineering design. In fact, young engi-neers (anyone with less than tenyears' experience) must usually getapproval from their functional su-pervisors not only for the designsthey propose hut also for each stepinvolved in the process of arriving atthe final design.

The company depends on supervi-sors to build deep functional exper-tise in its new hires - expertise thatthen facilitates coordination acrossfunctions. But functional supervi-sors also teach engineers how towrite reports, whom to send the re-ports to, how to interpret reportsfrom other functions, and how toprepare for meetings. Direct supervi-sion thus works in concert with mu-tual adjustment in order to promotecoordination.

Twist: To American eyes, such in-tensive supervision would seem to

be a kind of meddling that stifles thecreativity and learning of new engi-neers and other specialists. U.S.companies are moving in the oppo-site direction as they preach em-powerment, with superiors acting asfacilitators rather than bosses. ButToyota has succeeded in keeping itssupervision fresh and engaging, intwo ways. Like Toyota's supervisorson the factory floor, managers inproduct development are workingengineers. Instead of merely manag-ing the engineering process, theyhone their engineering skills, stayabreast of new technology, maintaintheir contacts and develop new ones,and remain involved in the creativeprocess itself. Functional engineersare not frustrated hy the experienceof working under someone lessskilled than they are. In many U.S.companies, by contrast, engineers

Supervisors are deeplyinvolved in their subordinates'

woric, without giving orders.

who rise through the ranks becomemanagers who stop doing engineer-ing work.

Perhaps more important, Toyota'smanagers seem to avoid making de-cisions for their subordinates. Theyrarely tell subordinates what to doand instead answer questions withquestions. They force engineers tothink about and understand theprohlem before pursuing an alterna-tive, even if the managers alreadyknow the correct answer. It's not aboss-suhordinate or even a coach-athlete relationship, but a student-mentor relationship.

Integrative LeadersPerhaps the most powerful way tointegrate the work of people frotndiverse specialties is to have a leaderwith a hroad overview of the whole.Many U.S. companies have recentlybeen moving toward a heavyweight-project-management structure.Heavyweight project managers coor-dinate all the specialists from func-tional departments around a com-mon project with a common set of

40 HARVARD BUSINESS REVIEW July-August 1998

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IDEAS AT WORK HOW TOYOTA INTEGRATES PRODUCT DEVELOPMENT

goals. Their authority in these ma-trix organizations comes from theircomplete control over their particu-lar project rather than from any di-rect supervisory authority over theindividual functions.

Toyota's equivalent is the chiefengineer. Each chief engineer, hasedin one of Toyota's three vehicle-development centers [which overseelong-term planning across projects),maintains full responsihility for asingle vehicle program but wields nodirect power over the functions.

Indeed, Toyota's chief engineerscome close to matching what othershave descrihed as the prototypicalheavyweight project manager. Be-fore attaining their position, theymust demonstrate hoth exemplarytechnical expertise and fluency insynthesizing technical knowledgeinto clever, innovative designs. Toy-ota's managers feel strongly that

A chief engineer is less themanager of and more thelead designer on a project.

only a good designer can evaluatethe quality of someone else's design.Chief engineers also need to be ableto conceptualize whole systems. Itis one thing to understand the me-chanics of a brake system and an-other to apply that knowledge to-ward an actual brake system design;but it is quite another thing to beable to conceptualize a brake systemand visualize how it can be integratedwitb the rest of the vehicle. By con-trast, a number of companies withheavyweight product managers donot have such stringent technical re-quirements.

All chief engineers have a smallstaff of 5 to 15 engineers to assistthem in managing tbe developmentprocess and in coordinating thework of the functional specialties.The hundreds of other engineers onthe project report only through thefunctional chain of command. Thechief engineer has no formal author-ity over them, so he must "per-suade" them to help him realize bisvision for the vehicle. One former

chief engineer described the positionas being the "president of the vehi-cle": just as tbe U.S. president headstbe country but has no direct author-ity over legislation (beyond vetoes),so a chief engineer cannot dictatewhat functional engineers do. Butbis extensive technical expertisewins him tremendous respect, evenadmiration, from functional engi-neers - a key source of his enormousinformal authority.

The limits on tbe chief engineers'power, despite their prestige, arereal, and the engineering expertiseand equal rank of the general man-agers in charge of the functionalareas can keep chief engineers frommaking potentially dangerous mis-takes. For example, in designing anew model of the Celica sports carseveral years ago, the styling depart-ment suggested a longer front-quarter panel. The change would

have increased the panel'sextension into the top ofthe front door, allowingthe door to curve back atthe top, thereby creatingan angular and more ex-citing look. The manufac-turing engineer assigned

to door panels, however, opposed thechange because the altered panelwould be difficult to produce.

After assessing both sides, thechief engineer for the vehicle fa-vored the altered front panel. Never-theless, the manufacturing engineerfelt strongly that the change was un-wise. If Toyota had organized aroundprojects rather than functions,styling would likely have gotten itsway, and tbe car might well bavesuffered production problems. Butbecause the chief engineer's author-ity was only informal, the manufac-turing engineer was able to raise theissue to tbe level of the general man-ager of manufacturing, who stronglychallenged the chief engineer. Aftersubstantial argument, the two sidesreached an innovative compromisetbat achieved tbe cutaway look thatstyling wanted with a satisfactorylevel of manufacturahility.

Such incidents explain why oneToyota engineer, when asked whatmakes a good car, replied, "Lots of con-flict." Conflict occurs when people

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from different functional areasclearly represent the issues fromtheir perspective. Its absence im-plies that some functional areas arebeing too accommodating-to tbedetriment of tbe project as a whole.Still, when managers resolve con-flicts through organizational influ-ence, horse trading, or executivefiat, tbe results are often poor. It isthe ability of chief engineers to seetbe broad picture clearly - and theability of functional managers tocontain the chief engineer's enthu-siasm-tbat leads to highly integrat-ed designs. And while tbe chief en-gineers keep individual projects ontrack, the autonomous functional

42 HARVARD BUSINESS REVIEW July-August 1998

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HOW TOYOTA INTEGRATES PRODUCT DEVELOPMENT IDEAS AT WORK

engineers and managers ensure thatknowledge and experience fromother projects are not forgotten inthe current one.

Twist: Chief engineers do differ inone important respect from even thebest heavyweight projeet managers.The latter typically delegate deci-sion making to functional teams,while retaining authority over theteam's decisions and taking respon-sibility for implementing those deci-sions throughout the developmentprocess. If a heavyweight projectmanager doesn't like a decision, heor she can veto it. By contrast, a chiefengineer takes the initiative hypersonally making key vebiclewide

decisions. His authority over designdecisions stems from the fact thatthe vehicle is quite clearly "bis car."He is therefore less the manager ofand more the lead designer on theoverall project.

As lead designer, chief engineersdesign (and subsequently manage)the entire process of developing tbeproduct, and they personally articu-late the vehicle concept tbat he-comes tbe blueprint for tbe entireprogram. That concept includes tbemajor dimensions of the vehicle; de-cisions on such major systems as thetransmission; tbe variety of modelsto be offered; tbe characteristics oftbe target customer; sales projec-tions; and targets on weight, cost,and fuel economy. Chief engineersintegrate the work of the functionshy planning how all the parts willwork together as a cohesive whole,soliciting input from the various en-gineering, manufacturing, and mar-keting functions, of course. Once achief engineer has designed tbe over-all approach for a car, tbe differentfunctions fill in the technical detailsthat are required to realize tbe vebi-cle concept.

Some of the remaining integrationproblems at U.S. companies may infact stem from a lack of preciselytbis kind of system design. Evencompanies with able heavyweightproduct managers tend to jump di-rectly from product concept to thetechnical details of engineering de-sign. Tbey bypass, witbout goingtbrougb, the very difficult hut im-portant task of designing the overallvehicle system: planning how all theparts will work together as a cohe-sive whole before sweating the finedetails. At Toyota, tbe chief engi-neer provides the glue tbat binds thewhole process togetber.

Standard SkillsEvery company depends on bigblyskilled engineers, designers, andtechnicians to hring a product tomarket. Organizations can coordi-nate their activities by giving eacbperson within a specialty the sameset of skills to accomplish his orher tasks. When we know what toexpect of others because they aretrained in a certain way, we can re-

quest specific services with relativelylittle effort in coordination. In engi-neering, most U.S. companies relyheavily on universities or special-ized training companies to providetheir people with the skills neededto do their jobs.

Toyota, hy contrast, relies primar-ily on training within the company.It views training as a key compe-tency, worth developing internallyratber tban outsourcing. Engineersreceive most of their training througbthe intensive mentoring involved indirect supervision, altbougb tbecompany also runs a training centerwith instructors who are experi-enced Toyota engineers. The processnot only develops excellent engi-neers but also teacbes new hiresToyota's distinct approach to devel-oping tbe body, chassis, or other sys-tems in a vehicle.

Additionally, Toyota rotates mostof its engineers within only onefunction, unlike U.S. companies,which tend to rotate their peopleamong functions. Body engineers,for example, will work on differentauto-body subsystems (for example,door hardware or outer panels] formost, if not all, of their careers. Be-cause most engineers rotate primar-ily within their engineering func-tion, they gain the experience thatencourages standard work, makingthe outputs of eacb functional grouppredictable to other functions. Inaddition, rotations generally occurat longer intervals tban the typicalproduct cycle so that engineers cansee and learn from tbe results oftheir work.

Tbat consistency over time meanstbat the company's engineers in tbemanufacturing division, for exam-ple, need to spend less time and en-ergy communicating and coordinat-ing with tbeir counterparts in designbecause they learn what to expectfrom them. Indeed, Toyota firmlybelieves that deep expertise in engi-neering specialties is essential to itsproduct-development system. Weoften heard such comments as, "Ittakes ten years to make a body engi-neer" in our conversations witb tbecompany's managers. In short, thewidely held notion tbat lapanesecompanies rotate tbeir personnel

HARVARD BUSINESS REVIEW July-August 1998 43

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IDEAS AT WORK HOW TOYOTA INTEGRATES PRODUCT DEVELOPMENT

broadly and frequently simply doesnot apply to Toyota.

Twist #1: Rotating locally andbuilding functional expertise wouldseem to create rigid functionalboundaries, or chimneys, in whichengineers work only to be the bestin their function. An electrical engi-neer, for example, might aim to de-velop the most elaborate electricaldesign possible, without thinkingabout how that design will workwith the rest of the vehicle. But wehave found that the so-called chim-ney effect is not the result of youngengineers being too loyal to theirfunctions or too narrow-mindedabout what cars need. Rather, it isusually the result of experienced en-gineers and managers hoarding theirknowledge, which becomes the ba-sis of their power in an organizationrooted in functions.

To avoid sueh political conflict,Toyota takes care to rotate most of

To prevent the chimney effect'spolitical conflicts, engineersat the bucho level are regularlyrotated to areas outside theirexpertise.

its senior people broadly. Engineersat the bucbo level-which usuallymeans the head of a functional divi-sion (for example, power-train engi-neering for front-wheel-drive pas-senger cars) with at least 20 years'experience-typically rotate widelyacross the company to areas outsidetheir expertise. Such moves forcehuchos to rely heavily on the expertsin their new area, building hroad net-works of mutual obligation. At thesame time, buchos bring their ownexperience, expertise, and networkof contacts that they can use to facil-itate integration.

Twist #2: Buchos (and chief engi-neers) encourage their people to seethe needs of the product as a whole,but Toyota also keeps design engi-neers aware of the ramifications oftheir decisions throughout the de-velopment process. These engineersretain responsibility for their parts

of the ear from the concept stage tothe start of full production. A door-systems engineer, for example,works with stylists to determine theconcept of the door and then devel-ops the detailed design by workingwith production engineers and out-side suppliers. The engineer alsogoes to the factory to be part of thelaunch team as the vehicle ramps upto full production.

Flexible Work StandardsThe stereotypical bureaucratic wayof coordinating work processes is tospecify in detail the content of eachstep in the process. Tasks are prepro-grammed so that one group knowswhat to expect from another andwhen to expect it, with Uttle or nocommunication required. Factoriesuse this kind of coordination exten-sively, standardizing the tasks ateaeh workstation to ensure that thework is done consistently and in a

set amount of time. Allthe workstations can thenbe easily coordinated by aschedule.

Many U.S. companieshave tried to apply thisconcept to product devel-opment, notably GeneralMotors with its four-phase process. A specialteam at GM defines the

process in great detail, telling eachdepartment what it needs to dowhen, whom to send results to, whatformat the information should take,and so on. The plan for the stylingfunction alone covers the length ofone wall in a sizable conferenceroom, The four-phase process is al-most never followed as its authorsenvisioned, however, because theprocess is so detailed that every ve-hicle program has exceptions thatforee designers to deviate from theprescribed process-the real worldresists such intensive planning. Inaddition, a separate group developsand maintains the details of thestandard process; as a result, the peo-ple who must follow the process donot have ownership of it, and theprescribed processes are not likely tobe truly representative of the actualone. Indeed, the four-phase processseems to do little to shorten cycle

times or to bring other benefits thatsuch thorough planning aims to pro-duce. Companies such as GeneralMotors face a dilemma: the morethey attempt to define the process ofproduct development, the less theorganization is able to carry out thatprocess properly.

Toyota, by contrast, has success-fully standardized much of its devel-opment process. Product-engineer-ing departments follow highlyconsistent processes for developingsubsystems within a vehicle. Rou-tine work procedures - such as designblueprints, A3 reports, and feedbackforms for design reviews-are alsohighly standardized. The overallprocess of developing a vehicle fol-lows regular milestones. Indeed, thesuppliers we visited in [apan coulddescribe from memory Toyota's ve-hiele-development process becauseit is so consistent from model tomodel. Every model bas a concept,styling approval, one or two proto-type vehicles, two trial productionruns, and finally a launch; and sup-pliers know the approximate timingof each event. (Eor more on how Toy-ota uses standards to coordinate itswork with suppliers, see "A SecondLook at Japanese Product Develop-ment," by Rajan R. Kamath andJeffrey K. Liker, HBR November-December 1994.)

Twist #1: How does Toyota avoidthe pitfalls that other companieshave experienced with work stan-dards? When you talk specifics withToyota engineers - sueh as howmany prototypes are built and tested,when designs are finalized, or howlong a particular phase takes - the re-sponse is typically that it varies casehy case. The actual standardizedwork plans are kept to a minimum;they often fit on a single sheet ofpaper. The basic process in the eyesof the participants is very consistentfrom model to model, but the imple-mentation of the eoneept is indi-vidually designed for eaeh vehicleprogram. Intense socialization of en-gineers through on-the-joh trainingcreates a deep understanding ofevery step, as well as a broad under-standing of the expectations at mile-stones and final deadlines. Thesimplified plans allow flexihility.

44 HARVARD BUSINESS REVIEW [uly-August 1998

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common understanding, and contin-uous improvement, while hard dead-lines keep the project on track. Thecompany thus gains the efficienciesoffered by standards without stiflingits engineers. The standards alsosave product developers the troubleof reinventing a new process for eachindividual project.

Twist #2: Another difference isthat the standard work proceduresare maintained by the people and de-partments that use them, not by acentralized staff that may be temptedto standardize for the sake of stan-dardization. As a result^ standardsare more likely to be simple and tothe point, relevant and up-to-date.They are therefore more likely to befollowed. In addition, the peoplewho use the standards understandtheir intent, so deviations are per-fectly permissible as long as consis-tency (and thus predictability forother functions) is maintained. AtToyota, developing the product anddesigning standard developmentprocesses are considered to be insep-arable tasks.

Living Design StandardsIn the past, product developers oftenused standardized product rules toguide their work. Many companies,however, seem to have shied awayfrom design standards in recentyears. Engineers at automakers inthe United States have told us timeand again that design standards arelargely ignored at their companies.Arguing that technology is changingtoo fast for standards to he valuable,they boast about "starting from aclean sheet of paper" in new prod-uct-development projects. (Test en-gineers, of course, rely on standardsto ensure that the final productmeets government regulations andother requirements, but those guide-lines concern the product's functioninstead of providing information forthe product's design.) Design stan-dards appear to be archaic or stiflingto companies that depend on inno-vation for success.

Toyota, however, still maintainsvoluminous books of engineeringchecklists to guide design work.These checklists act as the first cutat designing manufacturable prod-

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IDEAS AT WORK HOW TOYOTA INTEGRATES PRODUCT DEVELOPMENT

ucts that use common parts acrossplatforms. Engineering checklistscontain detailed information con-cerning any number of aspects, in-cluding functionality, manufactur-ability, government regulations, andreliability. The styling department,for example, has a checklist for thelicense-plate well that containsplate dimensions, bolt hole loca-tions, regulations on tilt angles andillumination for various world mar-kets, and restrictions on curvatureradii. And every part of the car bodyhas a separate manufacturing check-list that shows what angles will pro-duce a good part, what kinds of inter-faces avoid problems in assembly,and other guidelines.

Engineers use the checklists toguide the design throughout the de-velopment process. The checklistsare particularly important for theintensive design reviews that everyvehicle program undergoes. Hun-dreds of engineers come together tostudy a vehicle or prototype at key

When an engineer learnssomething new, the knowledgeis incorporated into achecklist and applied to allthe company's vehicles.

junctures, looking for problems andopportunities for improvement.What keeps these extremely largemeetings from becoming chaotic isthat all engineers come with a list ofall the items they need to verifyfrom their perspective. If the designconforms to the checklist, the part ishighly likely to meet a certain levelof functionality, manufacturability,quality, and reliability. If it does not,discrepancies between the check-lists and the design become the focalpoints of discussion among the divi-sions. The design review checklistsare another example of using writtenforms of communication to improveface-to-face meetings.

Once in place, design standardsadd predictahility across vehiclesuhsystems, and between productdesign engineers and manufacturing

engineers. The engineer responsiblefor audio speakers, for example, cantake advantage of existing specifica-tions for door sizes and door compo-nents and can hegin designing speak-ers without coordinating directlywith the other engineers working ondoor components. As a result, Toy-ota is ahle to hring new products tomarket quickly-as it demonstratedwith the RAV4 mini-sport-utilityvehicle, which was brought to mar-ket in 24 months, carved out a newproduct niche in Japan, hut still drewon existing design standards for 80%of its makeup.

Engineering checklists also facil-itate organizational learning acrossgenerations of vehicles. Toyota trainsits engineers not only to record prod-uct histories hut also to abstract fromthat experience in order to updateexisting capabilities. Wben an engi-neer learns something new, theknowledge can be incorporated intothe checklist and then applied acrossthe company to every subsequent

vehicle. Those lessonsreside with the organiza-tion, not in one person'shead. If an engineer leaves,the knowledge he or shehas gained is captured inthe checklists and re-mains with the company.Just as standardization isthe key to continuous im-provement on the factory

floor, standards are the basis for con-tinuous improvement in engineer-ing design.

Twist #J; Again, such standardiza-tion smacks of the kind of bureau-cratic approach that U.S. companiesseem bent on avoiding. But ratherthan presenting design rules thathave heen imposed hy a central staff,the checklists explicitly define cur-rent capabilities as understood hythe responsible designers. They arcliving documents: product and man-ufacturing engineers update thestandards with every vehicle pro-gram. New information is quicklyand efficiently disseminated through-out the organization and into inter-facing divisions, without any meet-ings taking place.

Twist U2: Toyota's continuous andoverlapping product cycles also help

keep standards fresh. The companylaunches new vehicles on a regularbasis, several times every year. Italso has annual product renewals,and a major model change everythree to four years, unlike othercompanies that stretch out theirproduct cycles. Accordingly, stan-dards are revisited every couple ofmonths (as opposed to being usedonce and then put away for a coupleof years); they never become out-dated. The frequent changes to thechecklists also give engineers con-tinual opportunities to develop andhone their skills.

Managing ProductDevelopment as a SystemTogether, tbese six mechanismsmake up a whole system, each partsupporting the others. Mentoringsupervision serves mainly to huildfunctional expertise, but it alsoteaches young engineers how towrite and interpret reports, workwith chief engineers, and under-stand and use standards. The chiefengineer's prestige reinforces theimportance of expertise while it alsobalances out the functional bent ofthe other engineers. The chief engi-neer also promotes mutual adjust-ment hy providing the working in-structions for each vehicle programand by resolving cross-functionaldisagreements.

For their part, the three types ofstandards interact and support oneanother to hoost the pace of develop-ment; at the same time, they allowflexihihty and build Toyota's base ofknowledge. Without the othermechanisms providing reinforce-ment, each mechanism would nothe nearly as effective. [See the exhibit"How the Coordinating Mecha-nisms Work Together.")

Indeed, the two halves of Toyota'ssystem-social processes and stan-dards-interact in powerful ways.The functional organization, withits intensive mentoring, trains andsocializes engineers in ways that fos-ter in-depth technical knowledgeand efficient communication. With-out deep tacit knowledge about howto develop products, standardizationwould hecome a bureaucratic night-mare. In turn, the common use of

46 HARVARD BUSINESS REVIEW luly-August 1998

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HOW TOYOTA INTEGRATES PRODUCT DEVELOPMENT IDEAS AT WORK

How the Coordinating MechanismsWork Together

Leve s of StandardizationIntegrative Social Processes

Integrative Leadership

chief engineer asiead designer

Mutual Adjustment

mix of writtencommunication and

meetings

long-term socializationand development

Standard Skills

intensive mentorship

local rotation

broad rotation athigher levels

Direct Supervision

working engineers

mentoringsupervisors

StandardizedWork Processes

consistent butminimal processes

standards maintainedby departments

voluminouschecklists

livingdocuments

The functional organization, with its intensive mentoring,trains and socializes engineers in ways that foster in-depthtechnical knowledge and efficient communication.

Three types of standards interact and support one anotherto improve the speed of development while allowingflexibility and building the company's base of knowledge.

Stability and Power

the different standards makes allfunctions automatically aware ofthe constraints imposed by interfac-ing groups and gives focus to reportsand meetings. Toyota shows thatcompanies do not need to choose be-tween functional depth and cross-functional coordination-each canfacilitate the other within the rightenvironment.

Toyota's halanced approach alsohenefits from hasic company poli-

cies that provide a foundation for thewhole system. With a stahle andlong-term workforce, the companycan afford to invest heavily in train-ing and socializing its engineers; itknows that the investment will payoff for many years. The companyalso places great emphasis on satis-fying customers. Most of its engi-neers in lapan, for example, are re-quired to sell cars door to door for afew weeks in their first year of hire.

Both factors help discourage thefunctional loyalties that might other-wise afflict a company with Toyota'sstructure.

These synergistic interactionsgive Toyota's system its stahilityand power. They enahle the auto-maker to integrate across projects aswell as within them. Design stan-dards, for example, facilitate integra-tion across functions while promot-ing the use of common components

HARVARD BUSINESS REVIEW fuiy-August 1998 47

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IDEAS AT WORK HOW TOYOTA INTEGRATES PRODUCT DEVELOPMENT

How Toyota Avoids Extremes

CHIMNEY EXTREME

Mutual Adjustment

Little face-to-facecontact.

IPredominantlywrittencommunication.

Direct Supervision

Close supervisionof engineers bymanagers.

Large barriersbetween functions.

Integrative Leadership

No system designleader.

Standard Skiits

INo rotation ofengineers.

Standard Work Processes

New developmentprocess with everyvehicle.

Complex formsand bureaucraticprocedures.

Design Standards

Obsoiete, rigiddesign standards.

TOYOTA BALANCE

Succinct written reports formost communication.

Meetings for intensive probiemsoiving.

Technically astute functionalsupervisors who mentor, trainand develop their engineers.

Strong functions that areevaluated based on overallsystem performance.

Project leader as systemdesigner, with limitations onauthority.

COMMITTEE EXTREME

Reliance on meetingsto accomplish tasks.

Rotation on intervals that arelonger than the typical productcycle, and only to positions thatcomplement the engineers'expertise.

Standard milestones-projectleader decides timing, functionsfill in details.

Standard forms and proceduresthat are simple, devised by thepeople who use them, andupdated as needed.

Standards that are maintainedby the people doing the workand that keep pace with currentcompany capabilities.

Predominantly oralcommunication,

Little supervisionof engineers.

Weak functionalexpertise.

System designdispersed amongteam members.

Rotation at rapidand broad intervals.

Lengthy, detailed,rigid developmentschedules.

Making upprocedures oneach project.

No design standards

in simultaneous projects, and pro-vide a ready base of knowledge forthe next generation of products.

Implications for OtherCompaniesToyota's mix of practices may not beright for other industries, or even forother companies in the auto indus-try. Different environments, differ-

ent corporate cultures, and differentcircumstances mean that a com-pany's product-development systemmust be uniquely designed to suit itsdistinct needs. Indeed, Toyota's sys-tem is not necessarily perfect evenfor Toyota. Although the companyhas succeeded mightily with its newproducts in mass-market sedans andluxury cars-two well-defined seg-

ments of the marketplace-it has re-acted late to the recent major shiftsin consumer demand: first to mini-vans and then to sport-utihty vehi-cles. So design standards and inter-nal socialization, for example, maymake for nimble and innovativeproduct development, but perhaps atthe cost of discouraging some bigleaps in thinking.

Nevertheless, we believe thatToyota's system has important im-plications for other companies. First,integrated product-developmentprocesses should be developed andimplemented as coherent systems.Individual best practices and toolsare helpful, but their potential canbe fully realized only if they are inte-grated into and reinforce the overallsystem. Toyota was fortunate in thatit was ahle to develop its systemover decades through an incremen-tal, almost unconscious, process oftaking good ideas and adapting themto the existing structure. Other com-panies that conclude they are goingdown the wrong track and need amajor overhaul of their product-development systems do not havethe luxury of developing their sys-tem gradually over time. They willneed to be much more conscious ofdesigning a coherent system.

Second, well-designed systemsshould balance the demands of func-tional expertise and cross-functionalcoordination. The chart "How Toy-ota Avoids Extremes" describes fea-tures of the two opposing sides: thechimney extreme, characterized bystrong functional divisions, and thecommittee extreme, characterizedby broad-based decision making andweak functional expertise. Toyota^for example, uses both written formsof communication and face-to-facecontact to the extent tbat each isuseful and efficient.

Achieving the proper balance,however, is no easy task. Many ofToyota's current practices - such asan emphasis on written communica-tion, design standards, and the chiefengineer-seem to have been stan-dard practice in the United States inthe I9S0S and earlier. But in the1960s and 1970s, as U.S. automakersneglected their developmentprocesses, systems that were once

48 HARVARD BUSINESS REVIEW July-August 1998

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sound and innovative gave way tobureaucracy, internal distrust, andother distractions that brought thecompanies close to the chimney ex-treme. In reaction, those companiesseem to have swung toward the otberend of the spectrum. Results in theshort term have been encouraging,hut the deficiencies of the commit-tee extreme may well appear soon.Some companies are discoveringthem already.

The key is to strike the appropri-ate balance for one's situation. Itmay be perfectly appropriate insome circumstances to rely almostsolely on meetings for communica-tion and problem solving or to aban-don standard procedures completely.But such practices are not good forall organizations at all times. Theyare not panaceas, and they do havesignificant drawbacks. One mustweigh tbe benefits and drawbacks ofa particular practice, including bowit contributes to all aspects of inte-gration (including integration acrossprojects) and how it affects otherparts of tbe system.

Finally, the success of Toyota'ssystem rides squarely on tbe shoul-ders of its people. Successful productdevelopment requires highly compe-tent, highly skilled people with a lotof hands-on experience, deep techni-cal knowledge, and an eye for theoverall system. When we look at allthe things that Toyota does well, wefind two foundations of its product-development system: chief engi-neers using their expertise to gainleadership, and functional engineersusing their expertise to reduce theamount of communication, supervi-sion, trial and error, and confusion inthe process. All the other coordinat-ing mechanisms and practices serveto help highly skilled designers dotheir job effectively. By contrast,many other companies seem to as-pire to develop systems "designed bygeniuses to be run by idiots." Toyotaprefers to develop and rely on theskill of its personnel, and it shapesits product-development processaround this central idea: people, notsystems, design cars. ^

Reprint 98409To order reprints, see the last page of this issue.

This 132-page book is available onlv through the Ernst & Young Center for Business Innovation,To order call Jim Park at 617.761.4057 or email [email protected].

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