If the Wall Street Journal can be believed, Toyota, Honda and Nissan are about to outdo Coke’s 1985 debacle in the annals of business stupidity. If it comes to pass, Ford’s ‘Way Forward’ will be clear, and GM will most certainly come roaring back to life. It seems as though the Japanese are planning to sink to U.S. levels and save the American companies the trouble of having to rise to Japanese performance.
According to the Wall Street Journal, "Japan’s car makers are adopting what Mr. Ghosn, Nissan’s chief executive, characterizes as an American approach to corporate finance. Shares of all three Japanese car makers [Toyota,Honda,Nissan] trade in the U.S., with Honda and Toyota listed on the New York Stock Exchange. As a result, the companies are moving to staff investor-relations departments with English speakers and to report quarterly earnings under standards expected of U.S. companies. At Nissan, which trades as American depository receipts on the Nasdaq Stock Market, Mr. Ghosn says the gauge of performance has shifted from market share, the traditional measure in Japan, to metrics such as profitability, cash reserves and return on investment. ‘These are the direct influence of the U.S. side,’ Mr. Ghosn said."
To Jon Miller and all others who objected to my categorization of Toyota as ‘racist’ for their failure to put Americans on the board, I can only say mea culpa, mea culpa, mea maxima culpa. Had I known that this is what the Americans working for the Japanese companies would do, I would have lauded Toyota’s history of making the Americans sit at the kid’s table for Thanksgiving and Christmas dinner.
I owe a thank you to Marcus Newman at International Specialty Products (which, among many other things, "adds flavor and clarity to beer", so they must be a good company) for passing this tip along to me. His note said, "I guess Toyota and Nissan didn’t read the Rebirth of American Industry book." If they did, Marcus, they apparently didn’t think too much of it.
For those who haven’t read it, the message Rebirth tries to send is that the early Ford Motor Company and then Toyota were driven by market share and cash flow. That concern drove them to create management practices and a management infrastructure that supported lean manufacturing. In order to optimize cash flow, production flow has to be fast. You can’t get good cash flow by building inventory. That is why Toyota calls inventory ‘waste’ – it kills cash flow. Continually striving for market share keeps constant pressure on prices, which in turn keeps constant pressure on costs – hence Toyota’s Profit = Price – Cost formula (as opposed to the American version, Price = Cost + Profit) This economic philosophy drove Ford to do things like constantly reduce the price of the Model T. He was growing market share and ratcheting up cash flow. It caused Toyota to do the same – a strategy so confounding to the American mindset that Toyota is often blasted in Detroit for ‘buying market share’ – a practice viewed as almost criminal by the ROI crowd.
American companies, particularly GM where the ROI concept was elevated to an art form long ago, do not put market share or cash flow at the top of the list. They measure themselves by Profits and ROI. With inventory as an asset and full absorption accounting allowing them to take overhead costs away from the profit calculation and park them on the balance sheet in the inventory account, an opposite set of management practices makes sense. Instead of eliminating the waste of setup time and defects, the numbers are better (at least in the short term) when you simply amortize them over big batches of production and move the cost out of the profit calculation.
Ford stopped being lean on the day in 1947 that they changed over to the GM/ROI economic model. If the Wall Street Journal article is correct, Toyota, Honda and Nissan will trace the death of their manufacturing excellence to the day they decided to adopt "profitability, cash reserves and return on investment" as their primary measures of performance.
It is really quite that simple – no lean manufacturer drives itself by profitability and ROI. No company that drives itself by profitability and ROI has become lean. If Toyota and the rest really plan to elevate ROI to prime metric status, I say welcome to the world of batch manufacturing.