LEAN PRODUCTION: ORGANIZING THE JAPANESE WAY
(Learning Objective #3)
In the automobile industry, a comparison of early craft production processes, mass production,
and modern “lean” production provides an interesting case study of the effectiveness of new
organizational structures in the twenty-first century.
The advantage of the mass producers lasted until the Japanese auto companies revised the value
chain and created lean production, thereby gaining for themselves the kinds of dramatic
competitive advantages that mass producers had previously gained over craft producers.
For example, the Toyota Production System (TPS), as the Japanese company’s manufacturing
methods are known, achieves efficiencies of about 50 percent over typical mass production
systems.
To achieve these gains at Toyota, production gurus Taiichi Ohno and Shigeo Shingo challenged
several assumptions traditionally associated with automobile manufacturing.
They made changes to operations within the auto company itself such as reducing setup times for
machinery. The changes also applied to operations within supplier firms and the interfaces
between Toyota and its suppliers and to the interfaces with distributors and dealers.
Ohno and Shingo’s innovations have been widely embraced in the industry; as a result,
individual producers’ value chains have been modified, and interfaces between producers and
suppliers have been optimized to create more effective and efficient value systems.
Assembler Value Chains
Employee ability is emphasized in a lean production environment.
Before being hired, people seeking jobs with Toyota participate in the Day of Work, a 12-hour
assessment test to determine who has the right mix of physical dexterity, team attitudes, and
problem-solving ability.
Quality control is achieved through kaizen, a devotion to continuous improvement that ensures
that every flaw is isolated, examined in detail to determine the ultimate cause, and then
corrected. (Exhibit 17-6)
Mechanization, and particularly flexible mechanization, is a hallmark of lean production.
For example, a single assembly line in Georgetown, Kentucky, that produces Toyota’s Camry
sedan also produces the Sienna minivan. The Sienna and Camry share the same basic chassis and
50 percent of their parts. Of the 300 different stations on the line, only 26 stations require
different parts to assemble minivans.
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In contrast to the lean producers, U.S. mass producers typically maintain operations with greater
direct labor content, less mechanization, and much less flexible mechanization.
They also divide their employees into a large number of discrete specialties with no overlap.
Employee initiative and teamwork are not encouraged.
Quality control is expressed as an acceptable number of defects per vehicle.
Even when the comparisons are based on industry averages, the Japanese lean producers
continue to enjoy substantial productivity and quality advantages.
Again, these advantages put the lean producers in a better position to exploit low-cost or
differentiation strategies. They are getting better productivity out of their workers and machines,
and they are making better use of their factory floor space.
The relatively small size of the repair area reflects the higher quality of their products.
A high number of “suggestions per employee” provides some insight into why lean producers
outperform mass producers.
First, they invest a great deal more in the training of their workers. They also rotate all workers
through all jobs for which their teams are responsible.
Finally, all workers are encouraged to make suggestions, and management acts on those
suggestions. These changes to the value chain translate into major improvements in the value of
their products.
It should come as no surprise that many of the world’s automakers are studying lean production
methods and introducing them in both existing and new plants throughout the world.
Downstream Value Chains
The differences between lean producers and U.S. mass producers in the way they deal with their
respective dealers, distributors, and customers are as dramatic as the differences in the way they
deal with their suppliers.
U.S. mass producers follow the basic industry model and maintain an “arm’s length” relationship
with dealers that is often characterized by a lack of cooperation and even open hostility.
There is often no sharing of information because there is no incentive to do so. The manufacturer
is often trying to force on the dealer models the dealer knows will not sell.
The dealer, in turn, is often trying to pressure the customer into buying models he or she does not
want. All parties are trying to keep information about what they really want from the others. This
does little to ensure that the industry is responsive to market needs.
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The problem starts with the market research, which is often in error. It is compounded by lack of
feedback from dealers regarding real customer desires. It continues to worsen when the product
planning divisions make changes to the models without consulting the marketing divisions or the
dealers.
This process invariably results in production of models that are unpopular and almost impossible
to sell.
The manufacturer uses incentives and other schemes to persuade the dealers to accept the
unpopular models, such as making a dealer accept one unpopular model for every five hot-
selling models it orders.
The dealer then has the problem of persuading customers to buy the unpopular models.
Within the mass assembler’s value chain, the linkage between the marketing elements and the
product planners is broken. The external linkage between the sales divisions and the dealers is
also broken.
The production process portion of the value chain is also broken in that it relies on the
production of thousands of unsold models that then sit on dealer lots, at enormous cost, while the
dealer works to find customers.
Within the dealerships, there are even more problems. The relationship between the salesperson
and the customer is based on sparring and trying to outsmart each other on price.
When the salesperson gets the upper hand, the customer gets stung. It is very much like the
relationship between the dealer and the manufacturer.
Each is withholding information from the other in the hope of outsmarting the other.
Too often, salespeople do not investigate customers’ real needs and try to find the best product to
satisfy those needs.
Rather, they provide only as much information as is needed to close the deal. Once the deal is
closed, the salesperson has virtually no further contact with the customer. No attempt is made to
optimize the linkage between dealers and manufacturers or the linkage between dealers and
customers.
EMERGING MARKETS BRIEFING BOOK
Western Business Executives Scold China
What happened when the chief executives of some of the world’s biggest global companies got a
chance to meet face-to-face with China’s Premier Wen Jiabao?
They gave him an earful; that’s what. The CEOs, Jürgen Hambrecht of BASF and Peter Loescher
of Siemens, were accompanying Germany chancellor Angela Merkel on a four-state visit. The
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criticism reflected broader concern among Western business and government leaders about
China’s business environment. One issue is bidding procedures that appear to discriminate
against foreign companies.
While acknowledging China’s strategic importance to GE, Immelt also made it clear that the
Middle East, Africa, and Latin America are emerging as key world markets.
Google CEO Eric Schmidt also made his voice heard. Addressing the Council on Foreign
Relations in New York recently, Schmidt expressed concern about Beijing’s ongoing efforts to
censor the Internet.
For much of 2010, Google and the Chinese government clashed over issues concerning filtering
content accessed via search engines. Beijing is also struggling to keep control over new media.
The contrast with the lean producer is again striking. In Japan, the dealer’s employees are true
product specialists.
They know their products and deal with all aspects of the product, including financing, service,
maintenance, insurance, registration and inspection, and delivery.
A customer deals with one person in the dealership, and that person takes care of everything
from the initial contact through eventual trade-in and replacement and all the problems in
between.
Dealer representatives are included on the manufacturer’s product development teams and
provide continuous input regarding customer desires. The linkages between dealers, marketing
divisions, and product development teams are totally optimized.
The differences between U.S. mass producers and Japanese lean producers reflect their
fundamental differences in business objectives. The U.S. producers focus on short-term income
and return on investment. In contrast, the Japanese see the process in terms of the long-term
perspective.
Ethics, Corporate Social Responsibility, and Social Responsiveness in the Globalization Era
(Learning Objective #4)
Today’s chief executive must be a proactive steward of the reputation of the company he or she is
leading.
A stakeholder is any group or individual that is affected by, or takes an interest in, the policies
and practices adopted by an organization. (Exhibit 17-7)
Top management, employees, customers, persons or institutions that own the company’s stock
and suppliers constitute a company’s primary stakeholders.
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Secondary shareholders include the media, the general business community, local community
groups, and nongovernmental organizations (NGOs).
Stakeholder analysis is the process of formulating a “win-win” outcome for all stakeholders.
The leaders of global companies must practice corporate social responsibility (CSR),
which can be defined as a company’s obligation to pursue goals and policies that are in society’s
best interests.
Organizations can demonstrate their commitment to CSR in a variety of ways including cause-
marketing efforts or a commitment to sustainability. (Exhibit 17-8)
As noted in Chapter 1, one of the forces restraining the growth of global business and global
marketing is resistance to globalization. In a wired world, a company’s reputation can quickly be
tarnished if activists target its policies and practices.
In a socially responsible firm, employees conduct business in an ethical manner. In other words,
they are guided by moral principles that enable them to distinguish between right and wrong.
At many companies, a formal statement or code of ethics summarizes core ideologies, corporate
values, and expectations.
For the global company with operations in multiple markets, the issue of corporate social
responsibility becomes complicated.
When the chief executive of a global firm in a developed country or government policymakers
attempt to act in “society’s best interests,” the question arises: Which society? That of the home-
country market? Other developed countries? Developing countries? (Exhibit 17-10)
A multinational firm may rely on individual country managers to address CSR issues on an ad
hoc basis, while a global or transnational may create a policy at headquarters.
In an article in Business Ethics Quarterly, Arthaud-Day proposed a three-dimensional framework
for analyzing the social behavior of international, multinational, global, and transnational firms.
The second dimension of the model includes CSR’s three “content domains”: human rights,
labor, and the environment. These are the universal concerns for global companies established by
the United Nations Global Compact.
The third dimension consists of three perspectives:
The ideological dimension of CSR pertains to the things a firm’s management believes it
should be doing.
The societal dimension consists of the expectations held by the firm’s external
stakeholders.
The operational dimension includes the actions and activities actually taken by the firm.
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The interaction between the dimensions can result in several conflict scenarios.
Conflict may arise from three areas:
1. If there is an incongruity between those things that a company’s leadership believes it
should be doing and the expectations of stakeholders
2. When there is an incongruity between those things that a company’s leadership believes it
should be doing and the things it actually is doing
3. From an incongruity between society’s expectations and actual corporate practices and
activities
TEACHING TOOLS AND EXERCISES
Cases:
“Pepsi Canada: The Pepsi Refresh Project”, by Matthew Thomson and Ken Mark, HBS, Richard
Ivey School of Business Foundation, Sept. 2011. W11191-PDF-ENG. 12 pg.
” Nike Football: World Cup 2010 South Africa” by Elie Ofek and Ryan Johnson. June 2011. HBS
511060-PDF-ENG. 29 p.
” The Dannon Company: Marketing and Corporate Social Responsibility (B)” by Christopher
Marquis and Bobbi Thomason. HBS Sept. 2011. 412047-PDF-ENG.
“The Clorox Company: : Leveraging Green for Growth”, by Elie Ofek and Lauren Barley.
Harvard Business School. Aug. 2011, 512009-PDF-ENG. 30 p.
“Banyan Tree: Sustainability of a Brand During Rapid Global Expansion”. Ali Farhoomand;
Pauline Ng; Cathy Enz. HBS HKU774.
Videos: Occupy Wall Street: http://online.wsj.com/video/is-american-business-being-socially-
responsible/03E85AD9-D2BB-4B26-B0F9-AE9036523F2A.html
Working with stakeholders around the world-from the owner/operators who run restaurants in
their local communities, to leading NGOs and third party experts – to continuously improve our
social and environmental performance, these are the people who have seen the real world of
McDonald’s.
http://www.youtube.com/watch?v=S_bgP3ASUM4&feature=related
Activity: By now, students should have completed their Cultural and Economic Country
Analysis and presented their in-country Marketing Plan. Assign student or student groups to
present their projects to the entire class.
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Movie: Assign Al Gore’s An Inconvenient Truth. The documentary puts CSR into a whole new
light—regardless of your politics.
Out-of-Class Reading: Vogel, David. The Market for Virtue: The Potential and Limits of
Corporate Social Responsibility. Brooking Institute Press, 2006.
Internet Exercise: Go to the Corporate Social Responsibility News website
(http://www.csrwire.com/). Take a look at current news headings on CSR and report to the class.
Interview: Interview three marketing managers from different organizations. Ask them about
their budgeting responsibilities and the “lessons” they have learned about budgeting.
SUGGESTED READINGS
Books
Bartlett, Christopher A. and Sumantra Ghoshal. Managing Across Borders: The
Transnational Solution, 2nd ed. Boston: Harvard Business School Press, 1998.
Cairncross, Frances. The Company of the Future. Cambridge, MA: Harvard Business School
Press, 2002.
Gerlach, Michael L. Alliance Capitalism: The Social Organization of Japanese Business.
Berkeley and Los Angeles: University of California Press, 1992.
Going Global: Succeeding in World Markets. Boston: Harvard Business School Press, 1991.
Govindarajan, Vijay and Robert Newton. Management Control Systems. New York: McGraw-
Hill/Irwin, 2000.
Katzenbach, Jon R., and Douglas K. Smith. The Wisdom of Teams: Creating the High
Performance Organization. Boston: Harvard Business School Press, 1993.
Kets de Vries, Manfred. The New Global Leaders: Richard Branson, Percy Barnevik, and David
Simon. San Francisco: Jossey-Bass, 1999.
Snyder, Neil. Vision, Values, and Courage. New York: Free Press, 1995.
Stopford, John M., and Louis T. Wells. Managing the Multinational Enterprise. New York: Basic
Books, 1972.
Tuller, Lawrence W. Going Global: New Opportunities for Growing Companies to Compete in
World Markets. Homewood, Ill.: Business One Irwin, 1991.
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Vogel, David. The Market for Virtue: The Potential and Limits of Corporate Social
Responsibility. Washington, D.C.: Brooking Institute Press, 2006.
Yip, George S. Total Global Strategy. Upper Saddle River, N.J.: Prentice Hall, 1992.
Articles
Asakawa, Kazuhiro. “Evolving Headquarters-Subsidiary Dynamics in International R&D: The
Case of Japanese Multinationals.” R&D Management 31 no. 1 (January 2001), pp. 1-14.
Becker-Olsen, Karen L., Taylor, Charles R. & Hill, Ronald P. “A Cross-Cultural Examination of
Corporate Social Responsibility Marketing Communications in Mexico and the United
States: Strategies for Global Brands”. Journal of International Marketing: (Volume 19,
Number 2, p. 30-44) 2011
Birkinshaw, Julian, “Encouraging Entrepreneurial Activity in Multinational Corporations,”
Business Horizons 38, no. 3 (May-June 1995), pp. 32-38.
________ , and Neil Hood. “Unleash Innovation in Foreign Subsidiaries.” Harvard Business
Review 79 no. 3 (March 2001), pp. 131-137.
Crittenden, Victoria L, Crittenden, William F. Pinney, Christopher C, Pitt, Leyland.
“Implementing global corporate citizenship: An integrated business framework”
Business Horizons. September 2011. HBS BH 488-PDF-ENG. 9 p.m
Dyment, John J. “Strategies and Management Controls for Global Corporations.” Journal of
Business Strategy 7 (Spring 1987), pp. 20-26.
Gupta, Anil, and Vijay Govindarayam. “Managing Global Expansion: A Conceptual
Framework.” Business Horizons 43, no.2 (March/April 2000), pp. 45-54.
Halal, William E. “Global Strategic Management in a New World Order.” Business Horizons 36,
no. 6 (November-December 1993).
Harris, Milton and Artur Raviv. “Organizational Design.” Management Sciences 48 (July 2002),
pp. 852-865.
Harzing, Anne-Wil. “Of Bears, Bumble-Bees, and Spiders: The Role of Expatriates in
Controlling Foreign Subsidiaries.” Journal of World Business 36 no. 4 (Winter 2001), pp.
366-79.
Hewett, Kelly, and William O. Bearden. “Dependence, Trust, and Relational Behavior on the Part
of Foreign Subsidiary Marketing Operations: Implications for Managing Global
Marketing Operations.” Journal of Marketing 65, no. 4 (October 2001), pp. 51-66.p
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Hsieh, Tsun-Yan, Johanne La Voie, and Robert A. P. Samek. “Think Global, Hire Local.” The
McKinsey Quarterly 35, no. 4 (1999), pp. 92-101.
Islam, Muhammad Azizul & Deegan, Craig.” Media Pressures and Corporate Disclosure of
Social Responsibility Performance Information: A Study of Two Global Clothing and
Sports Retail Companies”. Accounting and Business Research (Volume 40, Issue 2) 2010
Kashani, Kamran. “Beware the Pitfalls of Global Marketing.” Harvard Business Review 67, no. 5
(September-October 1989), pp. 91-98.
Kuniyasu, Sakai. “The Feudal World of Japanese Manufacturing.” Harvard Business Review 68,
no. 6 (November-December 1990), pp. 38-49.
Morrison, Allen J., David A. Ricks and Kendall Roth. “Globalization Versus Regionalization:
Which Way for the Multinational?” Organizational Dynamics (Winter 1991), pp. 17-29.
O’Reilly, Anthony J. F. “Leading a Global Strategic Charge.” Journal of Business Strategy 12, no.
4 (July-August 1991), pp. 10-13.
Stewart, Art. “Corporate and Social Responsibility: The Changing Context for Marketing
Communications Practice”. Journal of Integrated Marketing Communications. (Volume
21, p.59-64) 2011
Link: http://works.bepress.com/art_stewart/10
Thurow, Lester. “Who Owns the Twenty-First Century?” Sloan Management Review 33, no. 3
(Spring 1992), pp. 5-17.
Williams, Sandra L. “Engaging values in international business practices” Business Horizons.
July 2011.
Vaaland, Terje, Heide, Morten, Gronhaug, Kjell. “Corporate Social Responsibility: Investigating
theory and Research in the Marketing Context”. European Journal of Marketing. 2008.
v. 42. issue: 9/10. pp. 927-953.
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