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Learning from Toyota: how action
learning can foster competitive
advantage in new product
development (NPD)
Barbara Fuchs
Liechtenstein University of Applied Sciences
New product development and commercialization are essential to entrepreneurial growth and
international competitiveness. Excellence in this area is strongly supported by individual and
organizational learning efforts. By analyzing how Japanese car manufacturer Toyota organizes
learning, this paper evaluates the potential of action learning to manage organizational change in
the area of new product development (NPD). The indications of the study are that actionlearning represents an efficient strategy to manage continuous change necessary for the successful
innovation of products and processes. Additionally, workers at Toyota involved in learning
practices similar to action learning are personally committed to their jobs and satisfied with their
careers. The findings also suggest that action learning offers a valuable toolkit approach to
anticipate and rapidly react to external shocks and changed market conditions. Managers are able
to revise and restructure work organization by reconciling grown bundles of unique capabilities
with new skill requirements to cope with strategic challenges.
Keywords: Corporate restructuring; New product development; Skill management; Toyota
production system; Work organization
Introduction
New product development is one of the key driving forces for companies to build and
maintain a competitive advantage in their existing markets, to enter and to create new
markets. Learning in relation to product development is crucial in three aspects. First,
only products that satisfy customer needs will be successful in the market. New
Action Learning: Research and Practice
Vol. 4, No. 1, April 2007, pp. 25 43
Liechtenstein University, Furst Franz Josef Strasse, FL-9490 Vaduz, Liechtenstein. Email:
barbara fuchs@hochschule li
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products are either the result of improvements in design, features and functionality for
already defined customer segments. For example, car owners expect a new version of
their car model to exhibit the same basic characteristics but with a new touch in style
and improved performance. Or, companies are trying to acquire new customers bylaunching products with a high level of innovation. Many companies have historically
stressed traditional research and development in the belief that products stemming
from new technologies will almost automatically meet latent customer needs and
create new markets. However, growing experience with market failure or slow
market take up, has led to a shift from pure technology motivated innovation to a
more balanced mix of technology-push and market-pull orientation (Crawford,
1979; Cooper, 1990). Learning about existing customer needs is not easy, especially
when it comes to products which customers have not yet consumed. Traditional
market research can produce useful information, but its means are limited when it
comes to exploring latent needs and future demand. Customers are often unable to
articulate their expectations about products, although they can usually tell what
they like and do not like about existing products. They can also show how they use
artefacts which a new product might substitute. Interactive forms of learning, such
as lead-user methods and testing of user-behavior with prototypes are thus more
likely to identify subtle and equivocal customer needs that form the basis for
product success (Clark & Fujimoto, 1991; Herstatt & van Hippel, 1992). Moreover,
learning about customer needs must not be confined to the marketing department.
Every activity in the company interfacing with customers produces valuable customer
information, which needs to be systematically gathered, evaluated, and utilized fornew product development.
Secondly, new product success is closely linked to the overall production and mar-
keting capabilities of a company. A positive product experience is not limited to the
material product, but customer services and perceptions. For example, the procure-
ment of parts by suppliers engaged in illegal practices such as child labor, or a lack
of customer orientation in sales, can turn a good new product into a market failure.
Production and marketing capabilities can either spur innovation or impose signifi-
cant constraints on product innovations, e.g., due to outdated infrastructure or ineffi-
cient work organization. Developing new products should not be carried out solely by
employees in research and development, but has to be an integral part of the total pro-
duction system. In this respect, learning about potential product improvements and
innovation has to expand to the whole value chain of the company. Employees have
to be able and willing to put forward, promote and accept changes in work organiz-
ation as a driving force for or a result of innovation in technology, products and
processes (Morgan & Liker, 2006). Individual learning efforts have to be nurtured.
Positive results of individual insights have to be transformed into new general stan-
dards and new forms of work procedures.
The third aspect of learning in relation to innovation refers to organizational con-
tinuity and dynamic change. Companies often tend to develop a certain inertia oncethey have established successful market cultivation. New product development and
commercialization are ensured by a unique bundle of capabilities internalized and
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practiced by all employees and hierarchies. But markets are not eternally stable and
unchanged. Thus, companies also have to build the capability to anticipate changes
in their competitive environment and to renew their skill set and routines. Otherwise,
they risk going out of business as they are unable to respond timely to external shocksor changed market conditions (Nobeoka, 2006). Companies that have built and
maintained a competitive advantage in new product development are capable of
both continuously improving their products and processes and, at a certain
moment in time, initiating and dealing with organizational discontinuity and disrup-
tive change. Supported by a specific culture, learning in these companies supports the
preservation and enhancement of existing capabilities as well as the acquisition and
implementation of new skills when needed (Senge, 1990; Dixon, 1994).
Although the importance of learning has been widely discussed in concepts of
learning organizations, innovation and knowledge management (Senge, 1990;
Nonaka & Takeuchi, 1995; Davenport & Prusak, 2000; Gupta & Govindarajan,
2000), practitioners in search of tangible strategies and tools to design and manage
individual and organizational learning are left with little to hand. Action learning
has the potential to fill this existing gap between largely theoretically oriented
approaches and corporate practice by proposing a conceptual framework enriched
with guidelines and tools for practitioners. Action learning also promises to allow
practitioners to systematically address various crucial aspects of learning, and to
manage individual development and organizational change.
The purpose of this contribution is to investigate the relationship between action
learning and a companys capability to manage individual skills and organizationaldevelopment in new product development. To do so, the first part briefly discusses
the concept of action learning and its properties relative to innovation and new
product development. In the second part, the focus shifts to the experiences of Japa-
nese car manufacturer Toyota. Toyota has built and maintained a competitive edge in
the global automotive industry for the past 50 years and has become the worlds
second largest automobile manufacture. Besides high profitability in manufacturing
and marketing, Toyota excels in terms of new product development with outstanding
lead-user times, short product cycles, high quality and technical innovations. To
understand Toyotas new product development in detail, a process perspective was
employed which allowed close exploration of its historic formation and how learning
was practiced in the traditional Toyota production system (TPS) that prevailed until
the early 1990s. This section also highlights how individual and organizational learn-
ing efforts were implemented and sustained by the system. The study then turns to
portraying Toyotas management of radical change in new product development in
response to external shocks, altering customer preferences and increasing global com-
petition. This analysis of the restructuring process and the organizational outcomes
suggest that Toyota has carried out a learning initiative comprising practices inherent
to action learning. Learning at Toyota supports customer oriented new product devel-
opment along the whole value chain, fosters system thinking materializing in highlyintegrated products, and allows Toyota to deal efficiently with changing market con-
ditions Individual learning is continuously promoted and transformed into new
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collective organizational standards, ultimately preventing costly corporate restructur-
ing as a last-resort strategy. Although embedded in Japanese industrial relations, the
findings indicate that learning at Toyota strongly resembles action learning. The paper
therefore ends with arguing that action learning is a comprehensive tool to leverageToyotas success in new product development, which is largely based upon learning
practices specific for highly dynamic and uncertain environments.1
The fruitful alliance of action learning and new product development
Action learning can be defined as a structured three-phase process that involves small
groups of people from different disciplines to come up with new solutions for real pro-
blems and to learn from this experience. The first phase in the process (system alpha)
comprises questioning, identification and detailed description of the problem to be
solved. Questioning aims at opening up fresh perspectives and prohibits participants
losing valuable time on researching the past. Questioning will result in a precise
written description of what needs to be solved. In the second phase (system beta) par-
ticipants of the group will thoroughly investigate the problem, apply and revise exist-
ing knowledge, come up with solutions and assure their implementation. It is in this
phase, that participants can apply and revise knowledge and skills, which they have
acquired in the past. The third phase (system gamma) consists of reflection on the
whole process, to assess and reassess what has been learned and what the conse-
quences are for self and others (Revans, 1982; Marquardt, 1999; Dilworth &
Willis, 2003). Reflection often occurs in every phase of action learning to increaseawareness for the individual learning progress. Each action learning phase is sup-
ported by a set of tools and methods to achieve the twofold results of problem-
solving and learning.
Action learning can be applied in various contexts and organizations looking for
new solutions to an existing problem. In particular, action learning exhibits a set of
properties patronizing innovation and new product development:
. Learning about customer needs, increasing customer interaction and communication.
Effective product development relies on a products design ability to create a posi-
tive product experience. This involves a complex translation of product information
from customers to engineers to production to sales and back to customers. Learn-
ing about customer needs, potential problems and requirements for procuring, pro-
ducing and marketing new products involves intense communication with parties
internal and external to the company. Information has to be gathered, evaluated
and exchanged between customers and company representatives, between func-
tional departments involved in the process, between the company and distributors
and with stakeholders interested in the success of new product development (Fuji-
moto & Clark, 1991).
Action learning sets are destined to serve these manifold communication needs
between customers stakeholders and all kind of professional experts Because
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action learning sets are composed of persons who own a problemin this special case
coming up with a new product conceptthey are able to question existing product
solutions and production knowledge and to discuss new aspects and innovative
approaches. In addition, action learning sets are acting in an atmosphere of openand mutually agreed information access and exchange. In action learning the pro-
vision of information necessary to solve the problem, whether internal or external
to the company, is negotiated and agreed before the action learning set starts
working. There is a common understanding to deliberately share and provide infor-
mation. By reflecting on what set members have learned through the problem-
solving process, members can eventually come up not only with a solution, but
with proposals for general improvements in the retrieval of information, in the flow
of communication and in closing gaps of knowledge.
. Learning about product integration, fostering system thinking. New product develop-
ment is a complex task combining what customers want with what technology
can deliver and what customers can afford. Companies want to deliver customers
the best possible solution and to do it profitably. Product developers need to
have an understanding of the whole system and its interdependencies and be
willing to work with other functions and departments to deliver a fully integrated
product experience. Moreover, emerging problems in development are hardly
caused by a single factor, but multivariant influences that can only be detected if
developers are aware of the whole process. Analysis of outstanding companies in
product development have shown, that it is the overall pattern of consistency intheir total development system, including organizational structure, technical
skills, problem-solving processes, culture and strategy that makes them so success-
ful (Clark & Fujimoto, 1991).
Action learning sets are by definition heterogeneous. People with different back-
grounds, from different organizations and functions are asked to join a set to assure
diversity. During the first and second phase of an action learning program, set
members have to investigate the problem deeply, challenge existing knowledge and
try new approaches to solve the problem. This investigation must take into account
all influential factors and possible impacts of the suggested solution to the whole
system, for example discussing questions of how new products will affect overall pro-
duction cost and how customers will benefit from the overall integrated product
experience. In this context, action learning shows a common denominator with the
concept of lean thinking. Lean thinking targets the continuous improvement of the
whole value chain to better serve customers. Ideally, action learning set members
will apply lean thinking to solve their targeted problem by eliminating all intermediate
steps and hand-offs in the product development and production process not adding
value to the customer (Womack & Jones, 2003).
In the final phase of action learning (gamma system), reflection upon learning aimsat reconsidering the structures of the system and at deducing proposals for changing
the system if this is necessary If carried out accurately reflection will be structured
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and individual insights into learning progress will be formally documented. By doing
so, individual learning experiences can be translated, e.g., with the help of learning
scripts and routines, into new general standards improving both organizational pro-
cesses and the capability to empower employees to acquire new knowledge(Revans, 1982; Donnenberg & De Loo, 2004).
. Learning across the organization, delegating competence and facilitating problem-solving.
Studies on product development have found that a project-oriented approach,
rather than a function-oriented approach, leads to a higher performance in terms
of lead time, efficiency for individual projects and productivity in new product
development (Takeuchi & Nonaka, 1986; Clark & Fujimoto, 1991). As the
reduction of product lifecycle time puts more pressure on companies, managing
new product development projects becomes a core competence. Successful compa-
nies are developing products in parallel asking project managers to facilitate tasks,
duties and interdependencies both in a single project and between projects. Top
management delegates major competences and responsibilities to their project
managers and engineering staff, who take over full responsibility for the overall
project and its outcome.
Before starting an action learning program, supporting management will name a
facilitator or set adviser. He or she will make sure that the set is provided with necess-
ary information, has access to experts and managers, is able to challenge and try
alternatives and that the set is acting within the set rules. The management willagree beforehand to devote resources to the action learning set, to make sure that
action learning set members have full competence to act as problem-solvers and
that solutions created by the set will be implemented. Even, if that means that the
organization has to be restructured. Facilitation and top management support inte-
grate the action learning set into the overall organization and make sure that their
solutions and learning will materialize at all levels of the organization.
Learning in Toyotas new product development organization
Since the 1980s, when Japanese domestic car production in units became the worlds
largest, the Toyota production system (TPS) has become synonymous with the con-
cepts of lean thinking and lean production, which are characterized by a customer-
oriented flow of the production process, just-in-time supplier relations, continuous
improvement (kaizen), flexible mass production and workers mobility (Shingo,
1989; Ohno, 1993; Liker, 2005). Although often portrayed as a smooth process,
during the early 1990s, Toyota had to cope with major problems concerning job sat-
isfaction, low profitability and costly new product development. However, Toyota
soon managed to overcome this crisis by employing traditional learning practices to
analyze its market position, define new strategies and timely restructure its organiz-
ation by growing new competences and renewing the overall production system.
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The rise and fall of traditional new product development
When Toyota started out in the automobile business after the Second World War, the
Japanese car market was comparatively underdeveloped with an average of 100.000
units sold annually. European and US markets for personal cars had been steadily
evolving since the 1920s. In the US, the all-purpose road cruiser with a large body
and engine dominated the market offering a comfortable cabin and a soft ride. Euro-
pean cars were delivered in a greater variety based on outstanding space and fuel effi-
ciency, a firm ride, precise handling and functional sophistication. While western
producers were designing their cars for sophisticated, third-generation drivers, Japa-
nese companies serviced mainly first-time drivers with unstable consumer prefer-
ences. Early product concepts in Japan, e.g., the Toyota Corolla, were thus
borrowed from the US and Europe to test customer acceptance, learn about their pre-
ferences and win their loyalty (Clark & Fujimoto, 1991; Fujimoto, 1999).The product development cycle at Toyota started with intense market research and
analysis of future trends in consumption and production. Based on this information,
top managers defined high-level product strategies comprising quantitative perform-
ance and cost targets. Then the new product development department was charged
with designing the model (Hino, 2006). To accomplish the highly complex integration
of components and functions, Toyota established the so-called heavyweight project
manager organization in 1953 (Fujimoto, 1999).2 This project-oriented matrix
organization was characterized by the specific role of project managers coordinating
development across six functional divisions (design, engineering for body, chassis,
power and electronics, and product evaluation and testing) and the utilization of
the Japanese employment system.
For every single new car model a project manager was appointed, who was respon-
sible for the overall delivery of the product across all engineering functions, pro-
duction and marketing. Only charismatic engineers of increased seniority were
appointed to this position of project management. They had been trained in several
functions and departments of the company, and had acquired a broad set of skills
to understand how each function had to be incorporated for meeting strategic objec-
tives, requirements from production and marketing and quantitative targets.
Cooperation and integration with marketing was usually carried out through focusgroups and early prototype testing with potential customers to better understand
their needs and reasons for design rejection or willingness to purchase. Integration
with production was realized by the consultation of manufacturing experts and exten-
sive paper-based evaluation and checks of product design, concepts and production
requirements embedded in the overall Toyota production system (TPS). Project man-
agers were given high authority over functional division managers and were grouped
in the product planning division. The goal of this product planning division was to
make sure, that basic product concepts and learning from single projects would be
shared between project managers resulting in synergies and shared components. A
general manager was appointed to this division to ensure this transfer of knowledge
and support communication. During the 1960s Toyota had about 10 project
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managers supervising five to six staff members in the product planning group and
another 5 to 20 engineers from functional divisions working on their single develop-
ment projects. Basic technical research was carried out at the Toyota main technical
center in Higashi-Fuji (Nobeoka, 2006).The early success of Toyotas new product development was also spurred by the tra-
ditional Japanese employment system fostering multiple skilled workers, system
thinking through on-the-job training and mandatory job rotation and the remunera-
tion of individual and work group learning efforts. Historically rooted in the rapid
transformation of traditional to modern society, education in Japan promotes the
acquisition of general rather than special skills.3 Socialization aims at compromising
individual desires to the collective objectives of society as a whole or to special groups,
e.g., a school class, sport team and work group. Social status and personal satisfaction
is mainly achieved by contributing to their success. Because pupils and students are
promoted every year to the next grade, they are eventually entering the labor
market at the same age. This equality of age has a strong impact on how personnel
and professional careers are managed, especially in large Japanese corporations
such as Toyota. Practically, all new employees are hired only on April 1st, when the
Japanese fiscal year starts. Although there are no contractual agreements or legal
bonds, newly hired regular employees are still guaranteed lifetime employment with
the opportunity of an internal career and seniority based wage progression until
retirement.
In return for this job security, Japanese companies expect new entrants to fully
commit to their jobs, to be highly mobile and flexible and to adapt quickly to new rou-tines and challenges (Yamada, 2000). Competition among employees of the same age
group is ensured through the promotional system resulting in different internal
careers and levels of compensation. Every new entrant is trained and supervised by
a senior manager for two years on the job irrespective of his or her formal education.
For example, new engineers are often trained in production, marketing and sales
during these two years before they start their first regular assignment in new
product development. At the end of this initial on-the-job training, individual per-
formance, talents and social skills are evaluated by the supervising and other senior
managers. Supervising managers are putting much emphasis on the junior employees
ability to learn, to define new job requirements from his or her experience, to commu-
nicate and to retrieve necessary information to accomplish the job. Based on this final
evaluation and comparison among new hires of the same age, employees are being
promoted for the next three to five years into their first position within a department
or section. Two types of promotion are possible. Outstanding individual contribution
to work groups and the company will be rewarded by a promotion to a higher rank in
the hierarchy. Rank-based promotion signifies an increase in social status, but has
almost no impact on job duties and responsibilities. Functional promotions also
include a change in occupational duties and leads to a higher status both in and
outside the organization.Both types of promotion are coupled with wage increases. Initially, all those who
enter the company with the same level of education are paid comparably and their
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seniority-based part of the wage will increase at the same speed throughout their
whole career. Other wage parts are related to individual performance and are reflected
in wage increases related to rank-based and functional promotions. Individual com-
mitment and contribution to the companys success is also rewarded through abonus system. If the overall performance of the company and the economy are
good, bonuses are paid twice a year amounting up to 512 times monthly salaries,
otherwise no bonuses are being paid at all. Thus, the employment and wage system
offers Japanese enterprises the possibility to adjust easily rather the price and utiliz-
ation of labor than adjusting the number of their labor force. For the Japanese corpor-
ations, the financial merits of this system can be summarized by the full return of
investment from corporate training, the decrease of cost caused by recruiting, fluctu-
ation and termination, efficiency in information and rapid acceptance of technological
change among employees. The latter benefit from long-term employment, increasing
wages based on work group achievements and seniority, and prospects of an attractive
internal career (Aoki, 1988; Blumenthal, 1993; Boyer & Juillard, 1995; Cutcher-
Gershenfeld et al., 1998; Hanada, 1994, 1995). The following graph and table
summarize the traditional organization of new product development and illustrates
organizational learning aspects at Toyota from an action learning perspective.
During the 1960s and 1970s this type of organization proved to be very efficient.
As a part of the overall total production system, new product development profited
from technical progress in flexible automation, the close and just-in-time relationship
Fi 1 Learning in traditional NPD
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with suppliers of new product parts and Toyotas total quality management. The posi-
tive economic climate of rapid catch-up growth also had a positive impact on car sales.
In 1972, Toyotas domestic production totaled over 10 million vehicles with cumulat-
ive exports almost reaching 4.5 million units, largely due to delivering new models at
high quality and competitive prices every two to three years.
However, the rapid growth had major effects on the efficiency of new product devel-
opment. The growing number of engineers resulted in a higher specialization and new
functional divisions making project management and product integration even more
complex. Functional division managers found it difficult to manage their engineers
often working on more than ten projects simultaneously exercising only a singletask in each project. Engineers were also inclined to add highly specialized features
to every single product resulting in fat designs with lots of proprietary components
Table 1. Learning from an action learning perspective
Learning for new product development Representations in action learning
About customers needs:
On-the job training of engineers in
marketing and sales
Early focus groups and prototype testing
instead of pure market research
Increasing customers orientation:
Learning-by-doing through structured job-
rotation
Communication and structured interaction
with customers to test preferences and
discover latent needs
About product integration:
Functional engineers working on different
projects simultaneously sharing know-how
and learning from doing their job in different
project work groups
Heavy-weight project managers dealing with
one project across all functions of product
development
General managers of product planning
making sure that learning about best
practices are shared between projects
Double-checking standard routines with
production and marketing for optimizing
design and integrating product
Fostering system thinking:
Organization of heterogeneous work and
project groups
Questioning product design from all aspects
from engineering to production to
marketing
Organization of quality circles including
employees and workers with different
backgrounds
Structured reflection of progress on product
design across the overall production system
Continuously across the organization:
On-the-job training
Facilitators at work to ensure action learning
sets progressWillingness and ability to learn and to
change incorporated into personal
evaluation, promotional career and
compensation systemIntense personal
supervision and mentoring by experienced
senior manager
Delegating competence and facilitating problem-
solving:
Each project member and group facilitated
by heavy-weight project manager with fullcompetence and support of top
management
High levels of autonomy of project managers
to come up with product solutions
Full management support to implement
new solutions if needed
Source: Own illustration.
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and limited reusability of parts and technology for other models. This was commonly
supported by the project managers, who wanted to produce distinctive models that
stood out in the market beating competitors models by design and function (Liker,
2005; Morgan & Liker, 2006). The increasing degree of specialization jeopardizednot only the understanding of the entire product concept for integration, but the tra-
ditional patterns of work group based job rotation and functional promotion. Project
managers complained about increasing work load consumed only by integrating all
functions into their projects. By 1991, a project manager had to coordinate people
in 48 departments in 12 divisions withstanding double-checking with production
and marketing (Becker, 2006; Nobeoka, 2006). Furthermore, with the increasing
complexity of project management, general managers hardly supervised project man-
agers on engineering details, but entrusted them with high degrees of autonomy.
Slowly, sharing of knowledge, basic components and technologies between projects
diminished.
Until the late 1980s, the increasing shortfalls and cost in new product development
were not seen as a major problem. Sales of new car models usually surpassed initial
sales volume targets, largely driven by Toyotas innovative power and internationaliza-
tion. Growing market share and internationalization created nearly 7000 new jobs in
new product development feeding the traditional Toyota production system. Develo-
pers and designers, who literally made themselves redundant by optimizing the flow of
production were easily awarded new tasks and positions. Promotional wage gains were
topped by annual bonuses amounting up to 8-10 times the monthly base salary.
Although engineers in product development were expected to put in up to 20% ofunpaid overtime when work was expanding and deadlines had to be met, they were
fully committed and satisfied with work (Nobeoka, 2006).
The situation changed significantly when the Japanese bubble economy burst in
early 1990 leaving Toyota with dramatic slumps in domestic sales, pressures on
exports due to the appreciation of the yen against the dollar and increasing cost com-
petitiveness from overseas manufacturers amid mergers and acquisitions. When sales
dropped dramatically and prospects of a quick recovery deteriorated, the slowing pro-
ductivity in new product development suddenly became a burden to future competi-
tiveness. Toyota started to adjust labor cost by cutting bonuses, limiting promotions
and transferring people to lesser paid sales oriented positions. New hiring was post-
poned or substituted by hiring temporary workers who were not granted lifetime
employment. The reduction of subcontractors completed the attempts to cut cost.
However, in companies with a seniority system, downsizing by a reduction of new
hires is still costly as older, experienced workers are relatively overpaid in relation
to productivity.
Toyotas creative reconstruction of new product development
In 1990, Toyota launched an internal initiative called the Future Project 21 (FP21) totackle the persistent problems. The ultimate goal of FP21 was to identify problems of
the existing product development organization and to make it fit for the twenty first
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century (Nobeoka, 1995). Toyota wanted to have a clear understanding which tra-
ditional skills, processes and routines would be further needed and which new ones
had to be built to maintain a competitive advantage in product development.
Toyotas goal was to maintain the traditional high frequency of individually designednew car models with high quality, but at improved profitability. Pursuant to lifetime
employment, reduction of the work force was not seen as a solution motivating
employees to engage in the project. Yoshiro Kinbara, an executive vice president in
charge of product and technology development, was appointed to lead the FP21
initiative that was scheduled for a year. Besides top management support, Kinbara
had full authority to recruit resources from different hierarchies, functions and
departments. The Nomura Research Institute was hired as an external consultant.
In the beginning, the work of the FP21 initiative leveraged Toyotas existing seven-
step problem-solving process as illustrated in Figure 2 (Nobeoka, 1995; Liker, 2005).
Special work groups were asked to identify the biggest obstacles when developing new
products across all functions. They were also asked to analyze and record in detail
which routines, parts and components could be used without limitation by all
product development projects and which ones they thought were unique to a specific
car model. Based on their results, all current development projects had to be categor-
ized into groups with similar engineering requirements. Findings were forwarded to
existing quality circles for further discussion and evaluation. FP21 work groups
were then requested to describe precisely the areas and problems investigated and
propose solutions. In the case of missing data or open questions, work groups were
extended either horizontally or vertically to gather information from separate
Fi 2 Practical problem solving in FP21
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functional divisions or higher hierarchies. Final results of project work groups and
quality circles were eventually consolidated, reported and discussed with top manage-
ment by FP21 project leadership. Figure 2 summarizes the seven-step practical
problem-solving process and core results from FP21 during the process.FP21 project managers eventually delivered two root causes for declining pro-
ductivity in new product development. First, they named the inefficiency of increased
specialization hindering communication and exchange of information across func-
tions and projects. Second, they argued that development cost were too high
caused by too many proprietary car features and components. A new organizational
blueprint was presented to tackle the problems.
In 1992, Toyota restructured new product development into 4 development
centers: Center 1 was responsible for rear-wheel-drive platforms focusing on luxury
and high-quality vehicles, Center 2 for front-wheel drive platforms and vehicles in
the lower price segments, and Center 3 for utility and van vehicle platforms for rec-
reational cars. Center 4 was installed to make better use of technology research and
development. All engineers dealing with research and development on systemic com-
ponents that could be applied to all car models in the near future, e.g., air condition-
ing, supporting electronics, audio systems and new engines, were transferred from the
technical center in Higashi-Fuji to new product development (Nobeoka, 2006).
Research and development bases in North America, Europe, Australia and Asia
were continually established to take platforms from Japanese centers and to adapt it
to local consumer preferences.
The central product planning division was dissolved in three functional planningdivisions at each vehicle development center. Functional managers of this division
were made responsible to plan, manage and control tightly development cost and
quantitative performance targets. Project managers are still responsible for their
overall development projects, but have to report regularly to their functional man-
agers. The role of the project manager also had to change as Toyota acknowledged
new skills necessary. In the past crucial skills for project management could be
gained largely through experience. But with the emergence of new technologies,
e.g., CAD/CAM systems, younger employees were sometimes more qualified forproject management. By organizing project managers in a functional division,
senior staff can supervise junior project managers avoiding conflicts of authority
linked to seniority. Functional managers report the general manager of the center
on the projects progress and performance. General managers meet on a weekly
basis to discuss matters of product development and to make sure, that the knowl-
edge, skills, experiences and progress gained in single projects are transferred across
centers. The following Figure 3 shows the new organization of new product
development.
Within four years, the restructuring led to an average of 30% cost reduction per
development project, a decrease of prototypes by an average of 40% and shortening
of average lead time to about 18 months putting Toyota back into worldwide lead.Increase in component and platform sharing, intensive coordination between less
specialized departments and functions and improved communication and interaction
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within and across centers were identified as the major sources for improvement. The
new organization also allowed Toyota to maintain traditional skills and routines such
as the traditional employment system and routines of continuous improvements with
the integration of new skills, for example the grouping and management of develop-
ment based around technology platforms. Reconsidering the properties of action
learning earlier introduced in relation to new product development, the actions and
results of FP21 can be summarized as follows:
Increasing customer orientation, communication and interaction:
. Establishment of 4 centers with center heads being responsible for inter-project
management and project managers ensuring intra-project communication.
. Reduction of functional divisions and engineering specialization lessening workload
for product integration.
. Transfer of research personnel into new centers with basic R&D.
Fostering system thinking:
. Optimization of customer-oriented product integration across the whole valuechain by sharing parts and components, improved interface management and
bettering cost performance ratio
Figure 3. New product development organization after restructuring
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. Re-enforcement of traditional performance evaluation and promotion schemes to
reward individual employee efforts to improve the overall product development
and production process.
. Adaptation of wage system to better compensate for learning efforts, taking actionsand implementation of necessary change.
Facilitating problem-solving:
. Migration of project managers into new center functional divisions allowing for
coaching of junior project managers without conflicts of seniority.
. Maintenance of grown bundles of capabilities to continuously enhance skills and
processes, such as corporate culture, kaizen and quality circles.
. Retention of lifetime employment as an incentive for employees to commit to con-
tinuous and dynamic change in exchange for long-term job security.
The fundamental reorganization initiated through FP21 did not have a negative
effect on the number of total employees. On the contrary, before the reorganiz-
ation in 1991, about 11.500 persons were employed. After restructuring, each
of the four new centers employs up to 1900 engineers and handles between
three to five development projects. Additional staff is responsible for the planning
and controlling and supporting design, research and quality. In 1993, the number
of employees in the entire organization increased to nearly 12.000, partly due to
developing the RAV4,4 hitting the Japanese market in 1994. The RAV4 was
designed and produced by Center 3 in the new organization catering to consumers
desiring a car with a large cargo room and higher visibility, along with the maneu-
verability and fuel economy of a smaller car. This differentiating new product
concept formed the success of the new organization in integrating new customer
needs with cost-efficient, timely individual product design and production. Job sat-
isfaction and loyalty of employees could also be improved due to certain adap-
tations in the wage system. Before the reorganization, the wage system made
60% of wages dependant on efforts made monthly by each work team to reduce
its work duration and number of workers, implying an inevitable self-intensifica-
tion of individual workload. In 1993, this system was partly abolished and
reformed. The portion of the wage accumulated by work groups efforts toreduce work duration was brought down to 20% of the monthly salary. Instead
of being evaluated on a monthly basis by senior management, efforts to reduce
work duration are henceforth negotiated between management and workers at
the workshop level every six months based on workers own proposals (Shimizu,
1995, 1998).
Discussion and conclusions
After the Second World War Toyota excelled in new product development basedon a general positive economic climate and outstanding capabilities to conti-
nuously improve skills and work organization to deliver innovative cost competitive
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cars for a broad range of consumers. In the early 1990s, caused by a sudden
change in the economic climate, Toyota faced severe problems of overcapacities,
overloaded product designs, high cost in development and increasing job
dissatisfaction. It became obvious that the traditional production system hadbeen supported easily with high growth rates enabling generous compensation to
workers and suppliers for their personal contributions, but needed some
adaptations. By a meticulous investigation into which individual and organization
capabilities should be continued and which ones had to be discontinued, Toyota
reorganized into an efficient multi-project center organization and regained its com-
petitiveness in new product development (Nobeoka, 1995; Cusumano & Nobeoka,
1998).
Having built the capability to learn from individual and work group efforts and to
derive actions from learning, Toyota was able to turn around new product develop-
ment in time, and to manage a necessary change in managerial mindsets without
destroying valuable skills, making staff redundant and burdening the company with
high cost of restructuring. To achieve these results, Toyota obviously made use of
learning practices that are largely comprised and promoted by the concept of action
learning. The following Table 2 captures some of these striking similarities in learning
routines and organization.
In conclusion, findings from Toyota suggest that action learning strongly facilitates
new product development for maintaining a competitive edge. It seems that by the
implementation of a single action learning program new product development will
result in increased customer orientation and a highly integrated new product experi-ence. If carried out properly and supported by top management, reflection and learn-
ing from such a single action learning program could trigger further learning
initiatives aimed not only at delivering a single product solution, but to transform
learning into new organizational routines. Action learning might also encourage
broader job descriptions with positive effects on highly innovative companies. Tech-
nological change is constantly increasing, but job-holders are more and more specia-
lizing in narrow occupations and career paths. Grouping together jobs that can be
performed by the same individuals would provide greater work variety, simplify the
job evaluation process and enable companies to be more responsive to rapidly chan-
ging demands of stakeholders. Without the tradition and benefits of Japanese internal
labour markets and lifetime employment, action learning has the potential to motivate
managers and individual employees to engage in long-term projects of learning and
change with positive feedbacks to work satisfaction and personal commitment.
Especially if combined with personal development, internal career paths, including
horizontal promotions in combination with higher social status, and compensation,
such as one-time bonuses for learning efforts, action learning will spur employees
willingness to investigate and propose improvements, to consider the overall
impacts of their actions to the company, to promote and support change. This
might in the end, as the case of Toyota demonstrates, allow a company to continu-ously grow and evolve new capabilities and to avoid costly and demoralizing
restructuring
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Table 2. Learning at Toyotas new product development versus action learning
Aspired learning
outcomes
Learning at Toyota new product
development Action learning initiatives
1. Satisfying customer
needs (individual/
organizational)
Lead-user, focus-group based
needs research, testing and
evaluation
Standardized customer records
fed from all interfacing
company activities
Customer-oriented search for
solving problems; exploring
customer needs from different
angles and disciplines (system
beta)
2. Integrated
product experience
(individual/organizational)
7-step practical problem-solving
practice to locate and tackle
multivariant root causes
Enhancing and leveraging
explicit knowledge across
functions through instructive
training and extensive standard
documentation
Building and utilizing tacit
knowledge through on-the-job
training and job rotation
Avoiding high levels of
specialization
Involving experts from
manufacturing and marketing
into development projects
Delegation of overallcompetence to center heads
and project managers
3-step practical problem-solving
practice investigating and
delivering creative new
solutions
Enhancing communication and
interaction of persons from
different functions, positions
and disciplines
Equipped with resources,
competence and responsibility
to produce solution
3. Continuous
improvements and
dynamic
change(individual/organizational)
Kaizen
Efficient corporate bureaucracy
updated by learning outcomes
Vague job descriptions fostering
contextual adoption of skills
and competence
Promotions linked to personal
learning and transformation
into new organization standardsPerformance evaluation and
compensation connected with
learning efforts and results
Commitment to change in
exchange for lifetime
employment stability
Manager mindset promoting
learning and change
Implementation of FP21
Engrained reflection on learning
progress (system gamma) as a
basis for transforming learning
into new organizational
routines
Roles and competence of set
members are defined during the
process and utilized as needed
Engagement in action learningtriggering personal promotion
and higher social status
Top management support for
problem-solving and resulting
actions
Source: Own compilation.
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Acknowledgements
Thanks are due to Otmar Donnenberg for reviewing earlier versions of this article;
Masanori Hanada, Akinori Isogai, Koichi Koizumi, Kiyohiko Nishimura, Toshio
Yamada and Toru Yoshimura for discussions, interviews, internal reports and material
from Toyota.
Notes
1. Insights into Toyota were gained through on-site research at Toyota, organizational
material, semi-structured interviews with engineers, workers and managers and
discussions with researchers during the period of 1993 to 1997 sponsored partly
by a Ph.D. scholarship from the Austrian government and partly by a foreign
research fellowship from the University of Tokyo under the supervision of
Professor K. Nishimura.
2. The term heavyweight project manager as a translation from the Japanese word
shusa was coined by Takahiro Fujimoto, who wanted to pinpoint the broad
array of competence, ability and responsibility of Toyotas chief engineers acting
as project managers.
3. Although the formal educational system was structurally adapted to the American
system after the Second World War, the contents and main educational goals
remained strongly influenced by pre-war social norms and values.
4. RAV4 stands for Recreational Active Vehicle with 4-Wheel Drive.
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Reorganizing for Multi-Project Management:
Toyotas New Structure of Product Development Centers
April 4, 1995
Kentaro NobeokaResearch Institute for Economics and Business Administration
Kobe University
(Edited by Michael Cusumano, MIT)
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1. Introduction
The purpose of this paper is to discuss an emerging organizational structure
for new product development at large Japanese automobile firms. This study
specifically focuses on describing the objectives and outcomes of changes in product
development organization implemented at Toyota in 1992 and 1993. This
reorganization is the most fundamental change in product development organization
that Toyota has implemented since it established the Shusa (product manager)
organization around 1965. The new organization is aimed at multi-project
management. It has three vehicle development centers in which multiple projects
are grouped together, in contrast to either traditional single-project-oriented or
function-oriented organizations.
Toyota has often been considered as a leader in adopting new organizational
structures and managerial processes in both manufacturing and product development.
For example, the Toyota production system, symbolized by its JIT and Kanban systems,
has been targeted as one of the best practices in manufacturing by many firms, not
only in automobiles but also in other industries. With respect to product development
organization, Toyota led in establishing a project-based management system, which
aimed at coordinating activities in different functional areas into a well-integrated
new product. Clark and Fujimoto (1991) have described this as an organization
featuring "heavyweight" product managers, who facilitate quick completion of a
pro jec t by in tegra t ing d i f fe rent func t ions such as des ign engineer ing ,
manufacturing engineering, and marketing. An MIT research project, the
International Motor Vehicle Program, referred to this approach as "lean product
development" (Womack et al., 1990).
In addition to the efficient development of individual products, many studies
have shown that Toyota and other Japanese leading automobile firms have been
developing new products to add new product lines or replace existing products more
frequently than U.S. or European competitors (Abegglen and Stalk, 1985; Womack et
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al., 1990). Their capability in developing individual products efficiently through a
project-oriented organization helped implement the strategy of prolific product
introductions. This frequency has been overwhelming to some Western firms and has
been considered as one of the sources of Japanese firms competitive advantages in
world markets (Fujimoto and Sheriff, 1989, Nobeoka and Cusumano, 1994). In the past
15 years, for example, the number of passenger vehicle lines including sports utility
models at Toyota has more than doubled, rising from 8 to 18. Toyota also has
maintained its four-year product life cycles for most of its product lines, which is
much shorter than those in the Western firms.
In recent years, however, all Japanese manufacturers, including Toyota, have
become more concerned with efficiency in developing new products. In most of their
major markets, demand has slowed or even declined, while the cost competitiveness of
Japanese firms has considerably decreased because of the appreciation of the yen and
improvements at Western competitors. They have been facing profitability problems
that are related at least in part to the high costs of developing and manufacturing so
many new products or product variations. Therefore, Japanese firms are trying to
develop new products more efficiently while maintaining both a high frequency of
new product introductions and high design quality in individual projects.
In the highly competitive environment of the 1990s and the foreseeable future,
therefore, successful companies need to optimize not just one project at a time but a
portfolio of projects and technologies. In order to achieve economies of scale and
scope in product development as well as manufacturing, it is common for firms to
leverage their financial and engineering resource investments by reusing existing
technologies and designs in multiple projects. Firms also have to consider how to
share many components among multiple products without sacrificing an individual
product's design quality and distinctiveness. A key challenge to managers of product
development is to share technology across multiple product lines and across multiple
generat ions of products without over ly compromising design quali ty and
compet i t iveness .
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A project management system that assigns too much autonomy to each product
manager may concentrate too heavily on developing multiple new products through
relatively autonomous project-oriented organizations. This system tends to result in
the development of many proprietary components for each project, and may require
excessive financial and engineering resources. Therefore, automobile manufacturers
may need a product development organization that better balances individual project
performance with inter-project coordination. For example, Chrysler's project-team
approach, used for the LH and Neon projects, might only be appropriate for
optimizing the development of one product at a time. In contrast, Toyota managers
have considered that a project-team approach is not an efficient way for large firms
to develop many products concurrently that could share similar technologies and
c om pone n t s .
Firms that try to optimize the management of multiple projects simultaneously
need an organization that is suitable for coordinating inter-project interfaces and
interdependencies. Because most product-management research has focused on the
management of single projects, this is not helpful for managers and researchers to
understand the complexity of coordinating multiple projects. It may seem that a
t rad i t iona l func t ion-or iented , r a the r than pro jec t -or ien ted , organiza t ion i s
appropriate to manage inter-project interdependencies. However, this type of
structure is weak at cross-functional integration. Functional organizations also lack a
mechanism to ensure that individual products retain distinctive features and a high
degree of what has been called product integrity. Therefore, organizations should
aim at achieving both cross-functional coordination and inter-project coordination
simultaneously through the way they organize and control multiple projects. This
goal cannot be achieved by either traditional project-oriented or function-oriented
organizations. The inter-project interdependencies must be coordinated within the
context of a specific project as an integrated system. To share components while
retaining the distinctiveness of individual products, firms also need organizational
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structures and processes that enable system-level coordination across multiple
projec ts .
Toyota's reorganization into product development centers represents one way to
manage multiple projects. By establishing three centers, each of which contains
several vehicle development projects, Toyota has improved inter-project coordination
among technically related projects. At the same time, Toyota has strengthened the
authority of project managers over functional managers, and this has improved cross-
functional integration. These two goals may sound contradictory, but this paper
focuses on how Toyota has solved this contradiction. This paper is based on interviews
with three general managers, four product managers, fifteen engineers, and three
cost management planners between 1992 and 1994.
2. Problems of the Traditional Shusa Organization at Toyota
In 1953, Toyota assigned the first shusa, or product manager, to a new vehicle
project (Ikari, 1985)1 . When Toyota started product development for the 1955 Crown,
Kenya Nakamura became the first shusa to head a project. At that time he was a
member of the Engineering Management Division. The shusa organization was
strengthened in February 1965 when Toyota formally established the Product
Planning Division to organize and support shusas. At that time, there were already
ten shusas2 , and each shusa had five or six staff members, which totaled about 50
members in the division. The basic organizational structure with respect to the roles
of the Product Planning Division and shusas did not fundamentally change until 1992,
when Toyota introduced the center organization. One of the minor changes before
that time was a change in the title name for a product manager from "shusa" to "chief
Engineer" in 1989. In order to avoid any confusion, the rest of this paper will
1 I referred to this Ikari's book with respect to the information regarding the early period of the
Shusa organization in the 1950's and 1960's.2 Each of the ten shusas were responsible for Crown, Mark II, Publica, Century, Celica/Carina,
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consistently use the new term, chief engineer, to refer to this position, rather than
shusa or product manager.
After having maintained the same basic structure for more than two decades, in
1990, Toyota decided to evaluate its entire product and technology development
organization and to change it if necessary, so that the organization would fit the
competitive environment at the end of the twentieth century. Toyota launched an
initiative, called the Future Project 21 (FP21), to study any problems in its product
development organizational structure and processes. The leader of the project was
Yoshiro Kinbara, an executive vice president in charge of product and technology
development. A manager at Toyota explained that no specific threats triggered this
project. At that time, Toyota was actually doing better than most of its competitors.
People at Toyota, however, recognized that organizations sometimes needed to be
reviewed and overhauled to continue to be competitive in a changing environment. A
consulting firm3 was hired for this project evaluated the organization performance at
Toyota as a starting point of the FP21.
Soon after the FP21 started its studies, the team identified two important
problems. These problems led Toyota to conclude that it would need a major
reorganization. First, there was an organizational problem. A primary point was that
Toyotas product development organizat ion had become less eff ic ient in
communication and had come to need more coordination tasks than before to manage
new product development. Second, the competitive environment for the Japanese
automobile industry started changing drastically around 1990, which seemed to
require Toyota to change its product development strategy and organization. Due to
various factors such as the appreciation of the yen, the Japanese auto industry faced
decreasing competitive advantages against most competitors in the world. The
following sections discuss these two problems in more detail.
3 Toyota chose the Nomura Research Institute, a Japanese consulting firm rather than prestigious
U.S. based firms such as McKinsey. A person at Toyota mentioned three reasons for this decision:
(1) A Japanese consulting firm may know more about Japanese firms. (2) Toyota wanted plans for
implementations, rather than grand strategies. And (3) a Japanese consulting firm seemed likely to
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Organizational Problems
Figure 1 shows Toyota 's product development organization before its
reorganization in 1992. There were, at that time, as many as sixteen design
engineering functional divisions, and each had a functional manager. There were
about fifteen projects proceeding concurrently, even though Figure 1, a simplified
model, depicts only nine projects. Each project had a chief engineer, who was located
in the Product Planning Division under a general manager.
The product development organization was actually a huge matrix organization
rather than a project-based organization. Chief engineers and general managers in
the Product Planning Division did not directly oversee the engineering divisions in
this organization structure. However, chief engineers at Toyota were supposed to
have considerable authority over the entire product development process, including
different engineer ing stages, manufactur ing, and product concept creat ion.
According to the definition by Clark and Fujimoto (1991), chief engineers at Toyota
were supposed to be typical examples of heavyweight product managers.
However, in reality, the product development organization at Toyota had
become much larger than before, and chief engineers started to find it difficult to
control and integrate different functional divisions when making a new product. As
the number of product development projects increased, the number of engineers also
increased. At the same time, the degree of specialization in the engineering divisions
had become narrower, reflecting the increasing number of different engineering
divisions. As of December 1991, there were about 7000 people in the sixteen product
development engineering divisions. They were working, on average, on fifteen
concurrent projects. In addition, Toyota had a Research and Advanced Development
Group located at the Higashi-Fuji Technical Center. This had about 2000 additional
people4.
4 7000 people in the sixteen engineering divisions and 2000 people in the RAD group added up to
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Design Div.
Body Engineering Div. 2
Interior Engineering Div.
Chassis Engineering Div. 2
Power Train Engineering Div. 1
Electronics Engineering Div. 1
Product Evaluation & Engineering
Vehicle Evaluation & Advanced E
Product Planning Div.
GeneralManager
ChiefEngineer
FunctionalManager
Body Engineering Div. 1
Chassis Engineering Div. 1
Power Train Engineering Div. 2
Power Train Engineering Div. 3
Power Train Engineering Div. 4
Electronics Engineering Div. 2
Vehicle Evaluation & Advanced E
Vehicle Evaluation & Advanced E
Higashi-Fuji Technical CenterResearch & Advanced
Development
In
1991,
achief
engineer
had
to
c
oordinate
people
in
48
dep
artments
in
12
divisions
to
ma
nage
new
product
developm
ent.
This
estimate
comes
from
Toyota's
internal
data
on
the
number
of
frequent
participants
in
meetings
a
p
roduct
manager
people
were
enga
ged
in
supporting
activities
such
as
patent
management,
certification
process
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h e l d 5 . In 1976, there were only 5000 people in the entire product development
organization. A chief engineer had to coordinate only 23 departments in six divisions.
At that time, a chief engineer generally needed to talk with only six division
managers to integrate all the design engineering functions. This change indicated
that, during the fifteen years, coordination tasks had become much more complicated
for chief engineers.
In addition to this added complexity, there was another problem that made it
difficult for some chief engineers to manage a new product development project.
Some relatively junior chief engineers started to complain that they did not always
have enough authority over senior functional managers. Originally, only a limited
number of charismatic senior managers tended to rise to the position of chief
engineer. Toyota people often considered them as "gods" within their projects.
However, in recent years, Toyota has assigned relatively junior people to the position
of chief engineer. There are two reasons for this change. First, the number of chief
engineers required to cover all new vehicle projects had increased. Second, Toyota
recognized that people needed particular talents to be excellent chief engineers, and
their seniority was not as important as their ability.
Functional managers also found it difficult to spend sufficient time on
managing engineering details of all the vehicle projects, because most managers had
to oversee about fifteen different projects6 . They did not have enough time to oversee
complicated interfaces and interdependencies between these projects either. Due to
the large number of functional divisions and vehicle projects, each chief engineer
was able to arrange for regular meetings with all the relevant functional managers
only about once every two months.
5 Even though there were sixteen design engineering divisions, a chief engineer for a particular
project did not necessarily need to manage all of these. These data were based on Toyota's internal
measurements. The Company did not explain in detail its methodology for the measurements.6 There were a few exceptions. For example, as of 1991, there were already two separate body
engineering divisions, each of which was responsible for front-wheel-drive and rear-wheel-drive
vehicles, respectively. Therefore, each functional manager was in charge of about a half of the
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There was a problem also at the engineering level. Because of their narrow
specialization, engineers did not have a system view of the entire product. For
example, some engineers only knew about the inner body of doors and did not know
much about the outer body because interior engineering and body engineering
divisions were separate. This kind of excessively narrow specialization had a negative
impact on the development of a well-integrated product. In addition, Toyota realized
that the narrow specialization caused another problem for engineers when they were
promoted to become a manager in charge of a larger engineering task such as the
entire body. It was difficult to train general engineering managers in this
organizational structure.
Engineers also found it difficult to have a strong sense of commitment to a
specific vehicle development. Because of the narrow specialization and the large
number of projects, each engineer frequently had to transfer between unrelated
vehicle projects. This may sound useful to transfer technical knowhow between
different projects. In reality, however, despite the frequent transfer of engineers,
Toyota found that it could not transfer system knowledge in this way. Nor was this
structure particularly appropriate for inter-project knowledge transfer.
Toyota's rapid growth in size partially caused these organizational problems.
One way to increase the chief engineer's authority and to eliminate problems caused
by narrow specialization is to create a pure project team organization, such as
Chrysler adopted for its Neon project. In this organization, almost all engineers
exclusively work for a single project for its entire duration. However, Toyota did not
consider the project team organization efficient. This type of organization can work
well for firms with a small number of projects and little technical interdependency
between multiple products concurrently being developed. Because Toyota has many
projects and a limited number of engineers, it cannot assign engineers to a specific
project for the entire duration of the project. The peak period for design engineering
work for engineers in a specific project lasts only about one and half or two years out
of a four-year project. Therefore, when a project task is outside of the peak,
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engineers should be transferred to other projects to be utilized efficiently. In
addition, a change in the competitive environment discussed in the next section also
made the project team approach inappropri ate. In the new environment , effective
inter-project technology sharing has become more important.
Even the organization at Toyota prior to 1991 had problems with respect to
inter-project coordination. One of the policies of Toyota's chief engineer organization
was to encourage the autonomy of each chief engineer with respect to his own
vehicle project. General managers in the Product Planning Division above chief
engineers, therefore, did not supervise chief engineers in the details of individual
projects. In addition, the number of vehicle projects was too large for managers to
deal effectively with multi-project management issues such as resource allocation,
technology transfer, and component sharing across all projects.
Finally, there was a problem regarding coordination with the Research and
Advanced Development (RAD) Group located at the Higashi-Fuji Technical Center7 . The
center was maintained relatively independent of specific vehicle development
projects, so that it could focus on research and advanced engineering. However, both
vehicle projects and the RAD group were dissatisfied with this organizational
structure. Engineers for specific vehicle projects did not think that the RAD group
developed technologies that could be useful for their projects. On the other hand,
engineers in the RAD group felt frustrated because vehicle projects did not use
technologies that they developed. Toyota reached a conclusion that these two groups
needed more integration organizationally.
In summary, Toyota's product development organization had five problems.
These caused difficulties in both project integration and inter-project coordination:
1. There were too many functional engineering divisions with too narrow
specialization of engineers.
7 Because Research & Advanced Development Group was mainly located in the Higashi-Fuji
Technical Center, these two names are often interchangeably used. Higashi-Fuji is located about
150 miles east of Toyota's headquarters, which contains the primary functions for product
development. This paper uses a shorter name, RAD group, which is original here and is not used at
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2. There were too many vehicle projects for each functional manager to manage
the engineering details of each project as well as inter-project coordination.
3. It had become much more complicated and difficult for chief engineers to
oversee all the engineering functions.
4. The chief engineer organizat ion was not appropriate for inter-project
coordina t ion .
5. The RAD group and vehicle projects were not sufficiently coordinated.
Change in the Competitive Environment
The competitive environment surrounding Japanese automobile firms started
changing around 1991. There were two interrelated issues. First, rapid growth in
production levels at the Japanese firms virtually ended. The aggressive product
strategy of Japanese automobile firms in the 1980s, such as frequent new product
introductions and replacements, had been partially based on their assumption of
continuous rapid growth. The new environment seemed to require some changes in
this strategy, as well as in company organizations. Second, the importance of cost
reduction became even more critical for international competition than before. In
addition to the appreciation of the yen, Japanese advantages in development and
manufacturing productivity have been diminishing. Both factors have had a strong
negative impact on the cost advantages they had been enjoying.
Because of these changes, the traditional chief engineer system, which
primarily focused on building the best individual products one at a time, needed to be
revised. Chief engineers always thought about the success of only their own projects.
A general manager who used to be a chief engineer said, "Each product manager
wanted to increase sales of his own project even by developing many new proprietary
components and by expanding the target customer segments of his project into other
product lines within Toyota." He explained that, during the period when Toyota's
production volume w