Change Leadership For Operational Excellence: The Toyota Way

Posted in Operations & IT Articles, Total Reads: 3122 , Published on 08 September 2012

Operational Excellence has many definitions. According to one such definition, operational excellence is “when each employee can see the flow of value to the customer and fix that flow when it breaks down” (Kevin Duggan, 2007). This definition explains that when employees are able to relate operational performance to business process and are capable enough to fix any issues without supervisor intervention, operational excellence is achieved.

Operational excellence was initially relevant to manufacturing sector, however, it is now applied across industries. Several models have been designed to achieve operational excellence. Some of these models are Business Process Reengineering, Total Quality Management, Six Sigma and Lean Manufacturing. Companies which apply these models in their operations achieve better results than before.

The question then is, if all such information is publically available then shouldn’t all companies achieve operational excellence? This would mean that all companies should be market leaders. This question can be answered taking American automobile sector into consideration. Toyota was late entrant in a market of existing majors such as Ford, general Motors and Chrysler (Chrysler was shed due to a failed merger with Daimler from Germany).

Toyota used its Toyota Production system to achieve operational excellence and started its successful journey in American automobile sector. Soon after a lot of research was done on models to achieve operational excellence, other companies implemented their own models. Systems like the Ford Production System, the Chrysler Operating System, and the GM Global Manufacturing System came into picture. Ideally, all the companies should have gained from the implementation. But that did not happen and Toyota’s profits were soaring while the others had to suffer losses.

By March 2007, Toyota had a net income of $13 billion while the competitors GM incurred a loss of over $12 billion and Ford $2 billion. The companies definitely improved after implementation of new systems, but they were not at same level as of Toyota. Thus the assumption, operational excellence translates to business value creation, is incomplete.

Change Leadership at Toyota

Toyota’s success is not just associated with the Toyota Production System, but how it evolves. Toyota differentiates itself from other automobile manufacturers in how employees participate in improving the quality. Ken Kreafle worked in Georgetown plant for Toyota’s paint shop. He explains one major difference in conventional American managerial approach and the Toyota way. A senior manager from Toyota was going to visit his plant. He instructed the employees to get the vehicle with the best paint job and highlight it separately in the plant to be shown to the senior manager. It is common to highlight the best piece of work in America to the managers to please them for quality.

However, in Toyota things work in a different manner. Ken was instructed that the senior manager is not interested in the best paint job. Rather a random car which was not selected by Ken’s team was chosen and the team was asked where they found the faults. The complete team checked each section of the car and put a post-it marking the problem, till they could not find any further faults. Then he was asked whether he knew why those faults had occurred and how he thought the faults could be prevented in future. This activity gives an impression to the senior manager that the team is in control of the work and capable of improving the system.

This is the philosophy of change leadership that is followed in Toyota Production System that makes it ahead of the competition. It is not the system, rather the change leadership that helps Toyota in achieving operational excellence. Toyota trains its employees to see how value is created in its operational chain. Each employee is in control of his part of production and capable of improving the system.

How Change Leadership is inculcated in every employee at Toyota?

All managers at Toyota believe in power of observation. Before any employee can take part in improvement process, the general expectation is that he should be well aware of the existing products and processes. Bob Dallis, an experienced American new hire at Toyota, was set to lead a plant for the company. He was to undergo a training program for the initial weeks. He was introduced to Mike Takahashi who was to impart this training. For first six weeks, Dallis only observed how production was done at Toyota. By the sixth week, Dallis and the group he worked with recommended 25 changes in individual tasks and 75 in redistribution of work. After 12 weeks of training Dallis in observational method of change leadership, was still 5% below the target of 95% operational availability.

He was then taken to Japan to observe the change management in the parent country of the company. Within 3 days at Kamigo plant, he was able to recommend 50 changes and implement 35 with help of his team at the plant.

The way Dallis was trained, same way every leader in the organization was trained to be the change leader. The leaders were at all levels from subordinate to CXOs who were trained for change leadership.


Toyota managers are expected to spend a minimum of 20% of their time on process improvement. They are not supposed to do that in isolation themselves. Rather they are trained to observe, learn and then with help of the employees working on the shop floor implement changes. In his first six weeks itself, Dallis was able to reach a 90% operational availability in one plant.

Toyota managers do such operational improvements everyday in every plant. This philosophy of change leadership is what helps Toyota reach operational excellence. It is this culture itself that helps them in staying ahead from the competition despite every company adopting a similar production system.

The level of Toyota’s operational excellence has made it possible for them to revolutionize the automobile sector with its successful Hybrid car, Prius. Toyota Prius, into its 3rd generation, is estimated to exceed its sales expectation for the year. It is estimated that instead of 2, 20, 000 units that Toyota expected, sales may reach 2, 50, 000 units in US alone. Thus, it is not the operational excellence that makes Toyota different from its competitors, rather how it achieves this excellence by change leadership.

This article has been authored by Varun Arora from LBSIM.



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