What are the most important developments that you've observed since you first started working with KAIZEN?

I think I can talk in general terms about what happened in the latter half of the 20^th century.  When the Second World War was over, a great deal of consumer demand had arisen in the West.  One of the urgent tasks for many managers was how to keep up with the increasing appetite of customers.  Increasing productivity was the main concern.

When they talked about productivity, however, it mostly referred to the productivity of machines.  In order to keep up with this increasing demand of customers, companies were increasing mass production capabilities by deploying very fast-moving, efficient, and expensive equipment. 

At the same time, Taiichi Ohno was heading the Toyota operations in Japan, and had started introducing KAIZEN.  He had a clear idea that the productivity that was needed in Japan was not so much the productivity of machines, but the productivity of human beings.  Also, in Japan at the time, the market was really limited, so there was not really a need for mass-production like the Big Three. In order to meet the limited number of orders coming from customers, Taiicho Ohno thought that it is more important to improve the per capita productivity instead of the machine productivity. 

So this meant you could be productive regardless of how great the demand was?

That's right. 

How did KAIZEN help?

With KAIZEN you improve the way people do their work according to what the customer wants.  This is very different from the batch approach of Western manufacturing, which depends on high volume.  The process does not happen overnight – KAIZEN takes place over time.  In the West, they were very good at innovating to get fast results – making new products, redesigning, re-engineering.  But they weren't good at improving the everyday work.

Given these differences, what made Japanese-style manufacturing so attractive to Western companies?

A lot was changing in the West. One big thing that was happening in those days was the beginning of the quality movement.  There was a tremendous movement among consumers to force the companies to improve on quality.  Customers began to demand compensation for defects.  So companies got very concerned.  Many books were written, and companies started to implement quality improvement initiatives.

In hindsight, this worked out very well for Taiicho Ohno, because he had put much investment in the use of people, and people's education, and the willingness to engage in continuous improvement.

The other big development was that in the '70's, we started to see economic troubles.  Oil prices were rising, and customers were becoming more cost-conscious as well.  So management had to deal with this new dilemma.  Taiichi Ohno's found that by improving processes in the workplace, he found he could make quality products with minimum resources.  Naturally, by employing minimum people, materials, machines, layout, space, as a result, the cost is also minimized.  That's how the Lean production system came into being. 

So if you look back at the development in the latter half of the 20^th century, I can see that what was started out in Japan with productivity – not just machine productivity, but people productivity – has moved on to the worldwide trend of the improvement of quality – and then, towards the end of the 20^th century, since about, let's say, 1980, there has been a big thrust in the importance of Lean production.  And of course, Toyota has been singled out as a company that has achieved this Lean production system, and has proved itself to be the most profitable company in the automotive industry. 

Are Western manufacturing companies any better at this new system than they were 30 years ago?

For most companies, no.  The awareness is there, but unfortunately, the action does not support it.  There have been many new books and stories and articles that have been written about the Lean approach, and yet, very few companies have embraced it and have benefited by introducing it.  In fact, most of management still does not recognize the tremendous impact and the tremendous benefit of introducing the Lean system. 

What about the quality initiatives we hear about at Ford and GM?

At the Big Three, quality is not the priority of senior management.  Instead, they delegate this to quality departments who have very little clout in the organization.  Their approach to quality is to spend more money on inspectors and measurement equipment.  Without changing the old production system, they try to make temporary makeshift changes, like taking an aspirin if they have a headache, or putting on a band aid if they cut themselves.  Lean means you have to change the processes that created the problems.  This doesn't mean spending a lot of money, but it does take tremendous commitment from upper management. 

Why aren't we seeing that commitment?

As I see it, every manufacturing company has three major functions.  One is to design the product, the second is to make the product, and the third is to sell the product.  Top managements in the West show much interest and commitment in design and new product development, and in selling and marketing.  But when it comes to making product on the shop floor, which we call Gemba in Japanese, then they're not much interested.  They think that Gemba is so low in status that it is not the place for top managers to be bothered.  Managers working in Gemba are regarded to be inferior compared with others who are engaged in R&D, new product development, technology, sales and marketing, finance, etc.  So senior management really isn't interested in quality, or anything else that is going on in Gemba, on the shop floor. 

What's preventing this from changing?

Well, perfect change cannot happen over night.  But because of top management's concern over the quarterly bottom line, it is always favored to take some immediate action even at the risk of losing long term competitiveness. 

But I don't blame the top management of such companies as GM and Chrysler - they have to behave according to the expectations of their shareholders.  So this comes to the basic issue of what I think is corporate governance, that is to say, the relationship between the shareholders and the management of the company.  And personally I think that the weakest point in the American style and the European style of governance is because of the short-term expectation of the shareholders. 

What's your advice for senior managers who want to change this?

There has to be some ground for mutual understanding and cooperation between the shareholders and the top management of the corporation.  Fortunately for Japanese companies, maybe because we have the Japanese style of governance, in many cases there are companies like Toyota that were never pushed by their shareholders for improving every quarterly figure.  They were capable of making some long term investments without regard to satisfying their shareholders on a short term basis. 

For American and European companies, the issue is, how are we going to find a meeting place between short term approach to the quarterly bottom line, and the long term importance which ensures the long term stability and success of the company?

Are there any industry leaders who understand this?

Sergio Marchionne, the President of Fiat, is one of the few presidents who understand Lean.  He has been introducing a number of Lean systems.  I'm watching very carefully what he's going to do, because as you know, Fiat has taken over Chrysler, and that's one of the reasons why he wants to introduce this Lean approach.  So, I'm watching very closely.  However, I know that it is not an easy job when you have to change the whole corporate culture.  So, if nothing else, it's going to take many years before they feel the impact of the new way.   And the big question is, are they going to be able to sustain their vigilance until such time?

What do you think will be the long term impact of the Toyota recall situation?

The Toyota situation has given us two lessons.  The first is that even the best-regarded company can fail when it comes to quality.   The problems Toyota has exposed recently are nothing new in the automotive industry.  The other companies have gone through the same process.  But typically, because Toyota has been regarded so highly, just like Tiger Woods, this has made a big story. 

The second lesson is that when it comes to quality, the decision by the customer is the thing.  I'm sure that Toyota has its own justifications, its own explanations of what they are doing, and I'm sure they are very sincere.  But if one customer says 'no, this is not quality,' then it is the customer that always wins.

I believe that this situation will play to Toyota's strengths, not weaknesses.  Toyota has built the production flexibility over the years, and production flexibility comes from Lean, which most other companies don't have. Toyota has a minimal inventory, and is based on Just In Time production, so they can stop the line anytime, and can start the line again, and when it starts, the first product coming off the line will be a good product.  No other company can do that because they have so much inventory piling up between the processes.

And so, in spite of all this development that has happened, I truly believe that Toyota remains to be one of the most reliable companies that is producing one of the most reliable products. 

In general, where do you see the best prospects for KAIZEN today?

As you know, in line with the globalization of the world's economy, we have many new companies that are coming out.  Those new companies have not been bound by the bad habits of the traditional approach, so it is relatively easy for them to adopt the Lean approach.  I think these old-style companies and old-style management will be having a hard time competing with them.

Also, many of the Lean practices that have been followed in the manufacturing industry have moved into service sector organizations such as banks, insurance companies, hospital management, government, or retail chains.  Lean is now being introduced in these sectors with just as much effort as in the manufacturing sectors.  We're observing a new trend.  This is very encouraging.

To sum up, what should people remember about KAIZEN?

KAIZEN is a mindset.  KAIZEN means improvement not by spending money, but changing the way we do our work.  We have to question everything we do from the standpoint of the customer.  And every time we identify the opportunity to make changes, we have to do it right away without losing time.  It's a mindset never to accept the status quo, and always thinking that there must be a better way.   So this mentality, this culture, if I may, encourages us to build in the company what I think is most important.  And again, it is top management's role to foster that culture.