Difference between two management cultures OR How Toyota was successful where General Motors failed.
Located in Fremont, California, General Motors (GM) had established its plant in 1962, for manufacturing Chevrolet Malibu, Buick Century and GMC Trucks. Up to 1982 the plant was a battleground between company executives and its workers. Workers considered management as authoritarian and inflexible. On the other hand management thought union as militant and out of control. Every few years there was work stoppage due to strike on one or the other ground. Absenteeism was around 20 percent and the workmen were simply not bothered to work especially during start up time. The confrontational relations with the union had made the factory unprofitable as GM decided to padlock the plant. When the gates were shut, there were 5000 workers without jobs. The plant was ultimately closed due to unhealthy industrial relations
In 1983, the plant began reopening, this time with a joint venture between GM and Toyota Motor Corporation of Japan, under the name New United Motor Manufacturing Inc.(NUMMI). The agreement said that Toyota would assume responsibilities of running the plant under Japanese style of management. For Toyota it was an entry into US which would bring down the growing trade tensions between the two countries. Toyota would also gain experience of American trade union and suppliers. On the other hand for GM it was a chance to defuse public criticism for Fremont shutdown. It was a chance for GM to study the development of high quality inexpensive car called Nova. GM would also learn Japanese approach of cost cutting, cost effective and efficient manufacturing techniques.
Although United Auto Workers Union (UAW) opposed in the beginning slowly their opposition weakened and they signed the agreement with the NUMMI. Union agreed not to be bound by traditional job classification and rigid rules where as management agreed to hire the laid off workers. Former collective bargaining would not apply but the going wages in the auto industry prevailing at that time would be paid. Rather than individualistic shop floor management used in most US factories, the Fremont plant would be built on team concept.
Incredibly, the union and new company functioned according to the agreement. The 1st collective agreement was signed in 1985 recognizing that company and union had common goal to build highest quality automobile in the world at the lowest possible cost to the customer. The total investment in upgrading the original plant, additional new construction and initial operating capital was $450 million. By April 1985, factory was ready to go into full production under Roger Smith Chairman GM and Eiji Toyoda, Chairman of Toyota, Japan. UAW leaders and officials from both the countries hailed the new facility as innovative step in labor management cooperation and chance for expansion of worldwide auto industry.
In 1985, the Nova, distributed through Chevrolet dealers, compared favorably with Toyotas Corolla, back in Japan. The evaluating agencies admired the quality and safety norms at NUMMI plant and its products. By 1991 the plant had built million cars. A new painted plant, just in time inventory system, a body shop with 210 welding robots, support from 300 US parts suppliers, all made impressive operation with capacity of 220,000 cars annually.
This is an exclusive case of super behavioral training with a unique blend of Japanese and American features. To speed up the early learning process some 450 team leaders, hired at Fremont were sent in small groups to the Takaoka, Japan, in the plant of Toyota, for a month before NUMMI began operation. They studied in classes and received on the job shop floor training. They learned TQM, continuous improvement technique (Kaizen) team building and labour management cooperative practices. Each group leader worked side by side with a Japanese trainer on the Toyota assembly line . When they returned back to Fremont, they would train the new recruits at NUMMI sharing skills, concepts learned at Takaoka. This process took place throughout 1984. It was very decisive step in building a cultural change. The militant workers of UAW were being socialized , and that too into cooperative scheme, with totally diverse norms and values. New candidates had to undergo three day assessment methods, which trained them into factory simulation, group discussions, written tests, and personal interviews.
The base of NUMMI human relation philosophy was mutual trust and respect. Relics of the old GM culture of privilege were eliminated in the new plant. No executive parking lots and no management lunchrooms. Even office walls were removed as supervisors held their meetings on the shop floor. Everyone from CEO to downwards wore a NUMMI uniform rather than white shirt and tie. The traditional lines of demarcation between superior and worker was blurred socially and psychologically.
As stated, Toyota had managerial responsibility for NUMMI operation. Japanese executives were appointed for two top positions. Tatsuro Toyoda, son of Eiji Toyoda, Chairman of Toyota in Japan, was CEO of NUMMI. The Chief Operating Officer was Kan Higashi, also from Japan. Their goal was to set up a unique management style that would blend best practices of both the countries. The key points in the new venture were (1) stable and cooperative relationships,(2)built in quality assurance,(3) positive image of the company in the society and (4) long-term agreement with the part suppliers.
Various Japanese techniques were used to bring organizational results. Workers were empowered to stop production line if problem occurred and no disciplinary action would be taken. If employee violates company policy, there was joint management union review before anyone was discharged. The first line of authority was hourly team leader and not a regular supervisor. Team leader was a coordinator of six to eight peers and formed a working unit. Such four working unit would be led by company supervisor. There were only four level of hierarchy up to NUMMI CEO. Under the earlier system of GM there were 100 job classifications like assembler, electrician where as in NUMMI merely four. This dramatic drop from 100 to only 4 offered genuine flexibility. This made work faster and safer.
Under the old system monotony and boredom was prevalent as workers were locked up in a specific role. It portrayed FW Taylors vision of unskilled, disempowered worker split up into scientific division of labour where in manufacturing is broken up into small parts. Under the teachings of industrial engineers who were expert in time and motion studies, workers moved robotic. The outcome was boredom, resulting into absenteeism, rebellion and filthy production.
In contrast, new system liberated workers from the old shackle who then showed up new potential and this resulted into industrial tranquility. Workers enjoyed going to work the first collective agreement provided job security to UAW contract in the nation. Management was required to cut its own salaries before a worker could be laid off. This commitment was put to test practically when Nova sales slowed down and plant ran to only 60 % of its capacity. In earlier GM it would mean 300 layoffs. But it did not happen in NUMMI. All 300 workers kept coming to factory and received their pay and were being trained in new methods of problem solving. Equality of sacrifice was the new NUMMI culture and so it became known as company with a heart.
Absenteeism which was 20 percent in old factory was reduced to 2 percent in NUMMI. Unexpected absence was half percent. After three years only three grievances went for arbitration. In the NUMMI culture, roles changed. Union representatives now became facilitators of change when earlier they were spending their time in handling grievances, solving conflicts. Shop floor supervisors previously focusing on their power and authority took new role as channeling information to the workers and providing support, tools and other help.
Toyota had transformed this much maligned UAW workers into highly committed, high performance team. A plant that employed 3000 workers was able to completely reverse two decades of decline and escaped the possible fall. Not only they came out successfully but succeeded in matching the productivity of their rivals in Japan. Amazingly the Fremont plant, which was at the bottom of GM operations, was now at the top. NUMMI was manufacturing 200000 cars annually, a pointed disparity to the disastrous past from 1972 to the closing of plant. Following comparison could throw light on the difference between two management cultures.
Old rivalry system at GM/New supportive system at NUMMI
Individualistic approach/Team based approach
100 job classification/4 job classification
Hire and Fire/Stable jobs.
Emphasis on quantity/Emphasis on quality
Authoritarian management/Participative style
Union militancy / Union as partner
Managerial perks and elitism / Equality and commonality
Rigid rules / Flexible rules
Insecurity, layoff, and fear / Job security, growing employment and trust
Managerial control / Joint decision.
Strikes / No strikes
Low quality / High quality, adoption of TQM
Declining productivity / Growing productivity.
Thus Toyota worked wonders and brought complete turnaround.