The virtuous circle of sustainable growth
Original Article published on February 26th 2015 at planet-lean.com. Read original here.
The list of great companies of the 20th century must include Toyota and Procter&Gamble, which have both been able to accomplish sustainable growth.
Toyota Motor Company started as an automatic loom manufacturer that pioneered exports to the West, and subsequently became an automotive business that has been profitable for over 55 years. There was only one year of loss for Toyota, which coincided with the beginning of the Great Recession. By 2013, however, the company had already achieved the best sales and profits in the history of automotive, a record broken again by themselves in 2014.
P&G was founded in 1837. It developed its first patent in 1841 and in a few short years it got a reputation for quality products and innovation. Since then, P&G’s focus on customers and employees has propelled the company’s growth, based on the consistent creation of successful innovations and new consumer goods: from the first disposable diaper (Pampers) to the first toothpaste with fluoride (Crest) and the first synthetic laundry detergent (Tide).
As a result, in its 177 years in business the Procter & Gamble Company has been able to survive and even consistently enrich its shareholders, through the Great Depression, a number of wars, and several economic recessions. It enjoyed 58 consecutive years of dividend increases. P&G has grown from its humble roots as a Cincinnati soap-maker to one of the largest and most resilient, responsive and profitable consumer products companies in the world – with more than 300 brands, 23 of which are billion-dollar ones. In 2014 P&G products made nearly $84 billion in sales across more than 180 countries.
[Jeff Liker had the opportunity to study Toyota from the inside for over 30 years, while Jonathan Escobar worked for P&G where he was involved in a period of benchmarking and learning from Toyota. David Hanna worked at P&G through the late 1970s and the 1980s, when the company pioneered its system for high-performance teams.]
When we compared notes on Toyota and P&G we found these two great companies to have much more in common than one would initially think.
Both have consistently focused on providing customer value and have been rewarded with big profits for it. But the real story here is what these companies do with those profits: they invest them in building a culture of innovation and in making ever-better products that win the hearts of more customers. The manufacture of these products sees the development of the capabilities of associates and partners.
For both companies, achieving sustainable growth by fostering that virtuous circle is the foremost responsibility of management. To get there, both companies have focused on developing leaders who operate in an environment that enables employees to make the most of their efforts to continuously improve themselves, the product, and the process.
This is the way to ensure that all employees have the opportunity to spend their careers in the companies, with jobs that continuously challenge them to tap into their true potential.
When Jonathan Escobar was at P&G, it was his responsibility as a leader to:
a) Facilitate a clear path for each team member to contribute to the company’s vision;
b) Build a safe and nurturing working environment, characterized by trust, that enables every individual at every level to participate in effective problem solving to both improve business results and develop their full human potential;
c) Enable effective cross-organizational collaboration and cooperation to take on the challenge of continually delivering customer value.
In P&G and Toyota, people are deeply respected: inspired by the company’s vision, motivated by how they can personally touch and improve the lives of customers, and continuously challenged to go beyond their capabilities, learning new skills that help to fulfill the common vision and achieve high goals to satisfy customers.
In essence, P&G and Toyota share a distinctive purpose:
Winning the hearts of customers by developing people capabilities to continuously innovate and create value.
DEVELOPING PEOPLE AT P&G AND TOYOTA
In these two great organizations, people are expected to set high goals, both for making great products and for their self-development. By “people,” we mean those who directly work for both companies, as well as the numerous other stakeholders (like suppliers and business partners), with whom the companies commit to work on common goals, joint business plans, and – most importantly – joint value creation.
These are not soft-sell, feel-good relationships. They are based on hard-nosed sales, profit, and cash building action plans for which leaders and teams from both sides are held accountable. Their joint business plans are effective because they put the customer front and center — engaging the development of capabilities at all levels with key focus on front-line operations as a way to accelerate and sustain value creation.
DEVELOPING PEOPLE AT P&G
Procter&Gamble has developed its enviable business record by shaping a unique organizational culture that brings out the best in people and directs their energy to building the business.
Some background first. P&G introduced profit sharing for all employees in 1887. A long-standing belief of the founders was that “the interests of the company and its employees are inseparable.” This was formally included in the company’s articles of incorporation in 1919. This early pattern of connecting employees to business results has been refined through the years by continuously aligning purpose, culture, and organizational methods to deliver superior value to consumers.
“We will provide branded products and services of superior quality and value that improve the lives of the world’s consumers, now and for generations to come. As a result, consumers will reward us with leadership sales, profit and value creation, allowing our people, our shareholders and the communities in which we live and work to prosper.”
This current version of P&G’s Purpose reveals its holistic view of the company and its stakeholders – a long-term view of its contribution to the world’s consumers (leadership in sales, profit, and value creation) and prosperity for employees, shareholders, and communities.
P&G has nurtured a culture that is aligned with its purpose. It is highly selective and works to hire people at all levels whose values fit those of the company. It promotes from within, offering many opportunities for individuals to progress in their career. The result of these cultural values is that people find it easy to trust one another: changing roles, departments, or even locations is much easier because employees know they will be teaming up with other members of the P&G family. Today P&G employs people from more than 143 countries, the most diverse workforce in the company’s history.
THE DEVELOPMENT OF SELF-SUFFICIENT TEAMS
There are five key organizing principles at P&G:
– Give people real responsibility from the time they join up;
– Give them the opportunity to broaden their skills over time;
– Work together in teams whenever possible;
– Meet and exceed high standards;
– Develop others to grow continuously on the job.
procter gamble toyota liker escobarThis graphic illustrates how members of the manufacturing team can expand their skills and contribution to the business over time.
The inner circle is the foundation for all other opportunities. One has to master the operation and problem solving in one area. This foundation may be expanded eventually so that each person masters all areas in the work team.
Additionally, team members may fulfill roles in key support areas (represented by the second circle). This rotation eventually produces employees who have greater understanding of the operation beyond their own personal responsibilities, and their team’s. Trust and collaboration are expanded and process problems or opportunities that transcend teams are more easily solved.
Finally, team members may be offered the opportunity to exercise leadership for some part of the team’s operation. The third circle represents potential leadership/coordination assignments that team members can volunteer to take on.
Progressing through these three circles doesn’t happen in a few years. Instead, it can be viewed as a long-term career path. It can take years to master a task.
A second design feature that builds on this first foundation is the self-sufficient team. They have often been labeled “self-managing” or “self-directing” in the literature. These, however, are misnomers because no individual or team is ever totally self-managing or self-directing. We prefer the label “self-sufficient” because it is descriptive of a work team that understands what the business needs are for the day, divides up the workload, manages any toyota procter gamble lean growth daily interface issues with other teams or departments, and delivers great results without external supervision. The team is self-sufficient to do its daily work.
This graphic illustrates how some P&G teams divided up their leadership responsibilities to fulfill every function their former team managers did previously. All leaders volunteered for their roles and rotation of these roles was common once the individuals had mastered the requirements of their respective role.
The development of effective self-sufficient teams led to another design feature that supported high performance. A truly self-sufficient team doesn’t need a daily supervisor, but there is still a valuable role for managers to fulfill. W. Edwards Deming described this value-added manager role when he said, “Managers work on the system, workers work in the system.
The role of the Boundary Manager focuses on issues that usually fall between the cracks between a team and interfacing departments.
The value of boundary managers is easy to calculate:
1. Does anything ever go wrong between a team and these interfaces?
2. How much money is lost because of these things that go wrong?
3. What needs to be done to correct these things?
4. Who is available to look after these corrections?
In operations without self-sufficient teams, the front-line managers don’t have time to address boundary issues because they spend most of their time supervising their teams. Other managers may be working on their functional or departmental responsibilities, thus missing the boundary issues.
lean success procter toyotaThe team concept was expanded beyond manufacturing in the late 1970s when some troubled P&G brands introduced the multi-functional business team concept as a tool to identify actions to improve results, align what each function needs to do, and roll out the improvements in record time.
The multi-functional team has been more broadly deployed since then to include regional and even global brand issues.
Building on all the past development work, the push today in P&G Product Supply is to increase operational reliability following the example of the Toyota Way. The previous efforts to align purpose, culture, and organizational innovations have led to the willingness and competence to team up instantly with nearly anybody else to solve any problem or innovate to better serve consumers.
DEVELOPING PEOPLE AT TOYOTA
As Akio Toyoda puts it,
“We at Toyota are people who believe there is always a better way.”
At both P&G and Toyota, the pursuit of “a better way” starts with an individual obsession to listen to customer feedback, to be attentive to what is happening on the ground, to understand the situation, to interpret the information gathered and make quicker decisions that drive focused innovation at all levels.
And this happens at front-line level, with managers living the principle of genchi genbutsu, which means to be present where the actual work takes place. At both companies, managers at all levels are expected to go and see, understand real issues, and lead continuous improvement to better serve customers.
This understanding of customers and society needs is driven by their ingrained commitment to quality and constant innovation. At P&G and Toyota, it is a commitment that is in the DNA of every individual, supported by corporate cultures where teamwork and individual creativity thrive and people approach their work with pride and passion.
It’s a passion for kaizen, a passion for solving problems and delivering improvements that contribute to win with those who matter the most on the outside – the customers (and against competitors).
It’s a passion to tackle constant innovation to put the businesses in the lead, by providing better products and services that satisfy the evolving needs of every community, market, and region.
THE TOYOTA WAY MODEL
Toyota has come to portray their approach to doing business as a house that is now becoming as familiar as the Toyota Production System house. Going through the structure of this house can help to explain the Toyota Way, and how it is similar to, yet somewhat different from the P&G Way.
The two pillars of the house are continuous improvement and respect for people. They are completely intertwined. In fact, their mutual reinforcement is the virtuous circle of sustainable growth. Many companies try to implement some type of continuous improvement program, without the respect for people element driving the kaizen efforts.
Like P&G, Toyota makes serious investments in developing people, and retaining their services for the long term. This is an exchange: the associate commits to contributing to continuous improvement to help the company grow strong, and is rewarded with job security, safety, and economic wellbeing. Additionally, the associate is given opportunities to develop their capabilities and their position in the company.
Below are the five key elements that lay at the foundations of the Toyota Way:
“We form a long-term vision, meeting challenges with courage and creativity to realize our dreams.”
At Toyota, respect for people is expressed by a drive to challenge people to achieve targets for improvement that are beyond their current ability. Otherwise, they would be static (and disrespected). Every associate at Toyota should be able to clearly state their current challenges as measureable objectives.
If the challenge is appropriate for the person then it should be beyond their current knowledge threshold, and therefore require kaizen. Kaizen literally means “change for the better,” but it implies something more: a systematic methodology for learning how to achieve an operating pattern and results that we have not been able to achieve before. It is the process of improving that we call kaizen. Everyone in Toyota is expected to continually improve their kaizen capabilities: you can never perfect this skills set more than you can ever be a perfect craftsman, musician, or athlete.
There are a variety of tools to assist in kaizen, which includes what we often refer to as lean methods, like standard work and visual management. Having a standard is considered critical at Toyota as it defines the way things should be – what we are striving for. Gaps from the standard, which are made visible by visual management, identify problems that we should work on through kaizen.
Where the most important people development happens is where the work is done. Genchi genbutsu is at the source. Literally, it means the actual place. It can be where the core work is done or where a customer is using your product or service. You need to be there and observe first hand and see what happens when you experiment to improve your process and performance. While statistics give us indicators, the facts are discovered through genchi genbutsu: there is a high value placed on going and seeing and deeply understanding what is really happening.
This includes respecting your direct associates and all stakeholders and requires sincere communication and work to build mutual trust. We cannot respect each other unless we understand each other. Ideally, we should learn to put ourselves in other people’s shoes and see the world as they do. This is particularly challenging in a global business with many different cultures.
Finally, teamwork has been greatly emphasized at P&G, but there are some subtle differences at Toyota, in part because of their Japanese cultural heritage. Toyota defines teamwork as respect for individual development and realizing consolidated power as a team. It is almost impossible within Toyota to talk about teamwork without also emphasizing the development of each individual’s creative power. When a team is working to achieve a stretch goal there is always an individual leader accountable for the project.
We show in the figure an ideal work group in a Toyota factory. It is standard across all factories globally to have a group leader-team leader structure like this. We show five team members (TM) per team leader, which is considered ideal but is not always common. The group leader is the front-line supervisor in a traditional plant, while the team leader is somewhat unusual: this function is performed by an hourly team member. Their first responsibility is to respond to andon calls (when a team member pulls the cord that can stop production). They have many others, such as checking quality, checking tool settings, auditing team members against standard work, training new team members, and working on improvement projects.
Each work group has its own visual board of key performance indicators (KPIs) and ongoing activities to achieve challenging targets for improvement. They have responsibility for all of the processes and equipment so in this sense they are similar to a “self-sufficient team.” On the other hand, the leaders take responsibility for production and continuous improvement and there is one leader assigned to each target for improvement. That means that there is a higher density of formal leadership roles than in the P&G system, and more responsibility given to these leaders.
P&G LEARNS THE TOYOTA WAY
For P&G, learning from Toyota and experimenting at their gemba brought a fundamental leadership learning that Jonathan Escobar likes to reflect on with this statement:
“People don’t work for you. People work for your customers. YOU work for your people.”
Benchmarking against Toyota was fundamental for P&G to understand three main aspects of management:
1. Respect for the humanity of people;
2. The disciplined step-by-step coaching process required to build capabilities;
3. How to improve systematically toward targets.
P&G has learned that to deeply respect people first means to enable their desire to contribute to getting to True North, winning with customers.
During the benchmark process, this translated into a deep collaboration between P&G leaders and front-line teams to understand the transformation that was required, from the gemba out, so that work processes and information flow were designed to maximize individual and team ownership and accountability. P&G had for years developed strong organizational design capabilities: it was just a matter of putting these skills at the service of the development of front-line members.
It was then that P&G started to walk the “respect for the humanity of people” talk to its full extent. To build relationships based on trust was fundamental to engaging and developing all individuals to become the best they could be every day. This required the nurturing of the leaders’ ability to grow team members by challenging them and, at the same time, enabling them to operate and improve their workplaces every day, every shift.
Along the way, P&G deeply understood that there is no substitute for thorough hands-on practice when it comes to people development. Leaders at all levels started to learn this by practicing step-by-step disciplined coaching processes. Not occasionally, but regularly with a clear routine pattern at the gemba. This coaching happened on the job, daily, and was made more effective by the definition of meaningful responsibilities and assignments, both operational and specialized. This gave team members a framework to learn through experience, building up skills, step by step, as they solved problems and improved the value-added work in their areas of responsibility.
Today’s operators have become “process owners” and the supervisors their coaches. This is the essence of the P&G way: leaders building leaders. Each leader is continuously coached in the development of his or her skills to teach individuals and teams the routine improvement capability (the scientific thinking through which front-line members are equipped to complete systematic kaizen and problem-solving cycles, striving toward targets).
The end result? P&G is increasingly able to see things through, to unearth problems, and to collaborate in experiments inside and outside the company, to learn, to build skills and to drive PDCA all the way through to the ‘Adjust’ stage. Across the company, this is driving relentless improvements in safety, quality, delivery, cost and product innovation. P&G is making productivity its core strength, fuelling innovation as its lifeblood to consistently win with customers around the world.
TWO ILLUSTRATIVE EXPERIENCES
Perhaps two final examples will illustrate how similarly P&G and Toyota approach their business today.
Some years ago P&G collaborated with Walmart to examine the pipeline that moved P&G products from the plant floor to the Walmart store shelf. Some P&G executives and their families moved to Bentonville, Arkansas (Walmart’s headquarters) to gain a deep understanding of their retail customer’s needs and operating system. Walmart assigned executives from corresponding functions to team up with their P&G counterparts. Some visits were also included to some P&G plants. Once every member of the joint team deeply understood how the entire process was operating, the whole team began addressing each other’s needs through kaizen learning cycles at each process step (production, distribution, marketing, sales promotions, product development, and operations).
The commitment to partner for mutual success was critical. In the end, a new pipeline process was launched and after the first year of operation, both companies saw significant financial gains: both Walmart’s sales of P&G products and P&G’s profit on the Walmart account increased by 50%.
One could easily substitute Toyota and many of its supply chain partners into this example and the dynamics would be the same: true partnership focused on a common goal, meticulous examination of any defect or practice that would affect the end user’s satisfaction, design and alignment of the new process that created a win for all key stakeholders.
On the other hand, Toyota senior managers weren’t satisfied they had the best technical specification for the Tundra truck until they employed the “go and see” principle in North America, a key market for its trucks. Toyota executives sat in the parking lot of one of the home building supply stores. They watched as customers tried to fit a 4×8 foot piece of plywood into the back of the truck. The plywood would not lay down flat in the Tundra bed; it was too small and the plywood had to be transported standing up and secured with ropes to prevent them from falling out during transit. The executives saw and understood the importance of enlarging the size of the truck bed. The specifications for the Tundra’s bed were changed to accommodate the plywood sheets, the vehicle was introduced into the marketplace, and has been a big success.
Again, if you substituted Procter & Gamble managers and their consumers and exchanged the building supply store parking lot for P&G’s Home Consumer Research Center (where volunteers live in the “home’s” different rooms for a couple of days), you would have the same “go and see for yourself” dynamics.
At both companies the “go and see for yourself” principle drives the actions at every level of the organization. It is the Toyota and P&G culture of continuously connecting with customers personally to understand their needs, and of being willing to learn, change or improve whatever is necessary to satisfy those needs.
In conclusion, we are talking about passionate people, committed to a value-driven purpose and a set of guiding values worthy of – in fact, demanding – a lifetime of their best efforts. While there are some differences between Toyota and P&G, there is much more in common in their commitment to the Virtuous Circle: relentlessly developing people capabilities so that innovation happens at all levels, winning the hearts of their customers, and maintaining their enviable records of sustainable growth.
Jonathan Escobar Marin
Jonathan Escobar Marin is Director, Global Head of Lean Management at HARTMANN Group in Germany; and Co-Founder and CEO of Inn—Be.