Japanese automaker Toyota Motor Corp. has long been admired for its low worker turnover rate and its ability to avoid a layoff since the 1950s. The author of a new book untangles the simple mysteries of the Toyota culture and explains how your company can use them too.
Mike Hoseus, co-author of the new book The Toyota Culture: The Heart and Soul of the Toyota Way, learned what he knows of the car maker's Eastern practices literally from the ground up, as a team leader walking the manufacturing floor in a Japanese factory. It was a lesson learned early on that distilled for him the very essence of what makes Toyota Motor Corp. so effective in its ability to find the right workers and keep them effective and engaged.
When he was first hired in 1987 as a 24-year-old group leader, he was sent to work at the company's Camry plant in Toyota City, Japan for a month.
One day on the line, he says, "I made a little scratch on the inside of a fender. No one saw it, so at first I didn't want to tell anyone. Then I got paranoid and pulled the [emergency stop] cord and the team leader came over and taught me how to do it right. We got the scratch fixed," he says, and the line went back to work.
Shortly after, at a daily meeting, the floor workers gathered with their line managers to discuss any problems during the shift. After a brief huddle, Hoseus says, "[the line managers] all started patting me on the back and congratulating me, and the translator said the supervisor had said, 'Thanks for admitting your mistake.' ... And that's how mutual trust and respect comes into play with continuous improvement."
A dedication to problem solving and trusting the workers it hires make up a large part of Toyota's culture, one in which turnover rates are below the 3 percent range at all of its North American plants and even lower at the Georgetown, Ky., plant, where Hoseus rose to the rank of assistant general manager of human resources.
He is now the executive director of The Center for Quality People and Organizations in Georgetown, Ky., a nonprofit organization (funded in part by Toyota) focused on developing lean human and organizational systems.
The lessons included in his new book, co-written with Jeffrey K. Liker, a professor of industrial and operations engineering at the University of Michigan, were designed to provide readers of his original work, The Toyota Way, with some guidelines on the tools he introduced in that first book.
"People were grabbing the tools and the objective things, which are important," Hoseus says, "but we saw a lot of organizations missing the human component. ... If people are not comfortable or free to make mistakes, how in the heck are you going to fix them? Part of human resources is to establish that culture. And that is where Toyota is much different."
Hoseus' career in HR itself is an example of Toyota's constant search for the right fit. The company prides itself on cross-training its executives and often takes someone from one department and gives that employee the chance to succeed elsewhere in the company.
So, after Hoseus worked his way from group leader to manager, then assistant general manager overseeing two plants, he made the move to HR at the company's request in order "to give [me] a broader knowledge of the company," he says.
In his transition, Hoseus learned that the company's objective was not a complete imposition of its homegrown culture on its American outposts. "The goal was not to bring Japanese culture to Kentucky," he says, but to bring the company's non-negotiable standards of mutual respect and a commitment to keep its no-layoff streak alive, and to adapt it to the local culture and make the best of both worlds.
"The role of HR is to be the guardian of values and, at Toyota, HR is given a lot of power. It's not just benefits and payroll," he says, adding that HR representatives are on the floor with workers and have the ability to identify and solve employee-relations issue as they come up.
In order to understand how Toyota finds workers to staff the countless shifts of assembly-line production, one must first understand the company's deeply-engrained philosophy as it relates to the HR function.
"The philosophy for Toyota is to manage by values and to work toward having all the members of the organization living those values," Liker and Hoseus state in Chapter 13 of Toyota Culture, "this is a different approach from most organizations that have a stack of manuals with detailed procedures that people rarely even look at. Toyota's team-member handbook is very small in comparison and contains only descriptions of key policies like vacation and medical leave.
"What is unique about Toyota is what happens within each of the units [that make up the company's HR department]. The role of the employee-relations unit is to bridge the management of the organization to the team members," they write. "Within this group there are full-time jobs assigned to specialists known as HR Reps," they add. "The role of this group of people is to be the team-member advocate. They are to be on the floor, accessible to the members and ... to hear their issues and then facilitate the rectification of the issues."
The authors also include an anecdote about how Kiyoshi (Nate) Furuta, an early champion of HR within the company's Georgetown plant, stood up to the company president and argued for more HR authority.
"I explained to Cho-san [then president of Toyota Motor Manufacturing Kentucky] that we need a strong HR department," Furuta is quoted as saying in the book. "We must have the final decision to change employee status. Supervisors can recommend but cannot make final decisions. Even then, people in HR did not believe in this kind of concept because they were so used to being the processors after department managers make decisions about hiring, firing and promotions. Our system says HR can say no."
Attention to Detail
In addition to taking new, more powerful reins of corporate leadership, Toyota HR uses real-world applications to find the best-fitting employees, says Pete Gritton, vice president of human resources for Toyota Motor Engineering & Manufacturing North America Inc. in Georgetown, Ky.
"During the hiring process, we conduct a manufacturing simulation to view the candidates' reactions to problems [and] their ability to cooperate, compromise and work within a team," says Gritton. "We look for analytical thinkers -- people who possess problem-solving skills and who will focus on determining root causes of problems."
On the back end of the process, when a worker leaves a position and creates turnover, the evaluation process continues as the company drills deep into analysis of its departing workers' on-the-job performance, he says.
"We conduct a careful analysis of real reasons for turnover. If a team member's spouse finds a new job in another town, that's one thing, but if someone leaves because of an internal issue, that's something we'll examine closely," he says.
He adds that the company also monitors its workers for career movement within the organization.
"We examine if people are moving up in the organization -- [and] what our bench strength is from team member to team leader and group leader position. What are our team members' evaluation scores? Are they meeting expectations? What are our succession rates? All these are factors that help us measure the effectiveness of our HR activities," Gritton says.
He advises other HR executives to put a lot of energy up front in the hiring process for it to pay worthy dividends in the end.
"Do a good job on the front end of hiring and educate the candidate on what is expected in terms of physical skill and work environment. Let there be no surprises for either party. Identify [those expectations] up front to ensure candidates are physically and mentally capable to perform the work required."
As Hoseus and countless other Toyota leaders have learned, the entire process all comes back to the team concept.
"At Toyota," Hoseus says, "we need ... people who [can work in teams,] can accept a certain amount of structure and who will be engaged. We want to make sure our candidates can accept and adapt to our work environment."
Liker says the car manufacturer's approach is sustainable despite the slowdown in the auto market because the company is very good at adapting its product mix throughout its plants in America. In fact, Toyota sales rose 2.2 percent to 4.8 million vehicles in the first half of 2008 while sales at its nearest competitor, GM, fell 3 percent to 4.54 million during the same time period.
In response to flat demand and an increased attention on energy-saving cars, both automakers have cut production of trucks in the United States, but the shift has hit GM harder because it relies more heavily on sales of such vehicles to meet its margins, according to industry analysts.
"Toyota's culture is sustainable for Toyota for sure," Liker says. "Nothing has really changed for Toyota. They had to adjust their product mix, keeping all of Tundra [truck] in San Antonio, and now they need a new product in Princeton, Ind., so they are putting Highlander [truck] production in there. There will be some months with too many workers in Indiana but they are keeping all permanent employees on the payroll and training them . . . .
"I suspect the workforce in Indiana was very nervous and really appreciates the no-layoff approach of Toyota," he says. "They will put the Prius in the new Mississippi plant so that plant should do very well. The other plants making Camry and Corolla and Matrix are not affected so far by the downturn, which is primarily in large trucks and SUVs."
So as the car market continues to slog along, American automakers are not faring nearly as well as Toyota, according to Liker's estimates.
"Now, GM and Ford and Chrysler all had lean programs and I cannot imagine their culture being sustained, given the large number of layoffs of hourly and salaried workers. "Just as the book suggests, Liker says, Toyota's approaches to HR and hiring are ripe with lessons for other HR executives. "Toyota is thinking about hiring employees for life, so they put an enormous amount of effort into employee selection," he says.
"They look not for specific technical expertise, but for people who fit the Toyota culture. Other HR executives need to convince the company leaders that people are truly the most important resource and worth investing in for the long term," he says.
"Then, selection will be necessary to get the right people."
Liker cautions against taking Toyota's success story lightly and risk losing the lessons contained therein. "As long as people are viewed as interchangeable and variable costs," he says, "employee selection will not be taken seriously."