Then the worker manning the pneumatic gun pushed a bolt into place, applied his tool, and an ugly squeal sounded. The bolt had misthread the hole—a common mistake—and was stuck halfway in the doorframe. Madrid expected the man to signal the defect by marking the door, like they did at GM, so the car could be eventually towed to a back lot and repaired. The problem with that system, however, was that replacing the bolt would require disassembling the door, repairing the mistake, and then rebuilding everything. The trim would be less snug in the vehicle’s frame afterward. Whoever bought the car wouldn’t notice at first, but after a few years, the door would start jiggling. It would be a shoddier vehicle.
When the screw gun squealed inside the Japanese plant, though, something unexpected happened. The worker who made the mistake reached above his head and pulled a hanging cable that turned on a spinning yellow light. He then reversed the direction of his screw gun and pulled the bolt out of the doorframe, grabbed another tool, and used it to smooth the hole’s threads. At this point, a manager walked over, stood behind the worker, and began asking questions. The worker ignored his boss except to bark out a few orders, and then grabbed another tool to rethread the hole. The conveyor belt was still moving, but the worker hadn’t finished his repair. When the door got to the end of the worker’s station, the entire assembly line stopped. Madrid had no idea what was going on.
Another man, clearly a senior manager, came over. Instead of yelling, he laid out a new bolt and equipment on a tray, like a nurse in an operating room. The worker kept issuing orders to his superiors. In Fremont, that would have gotten him slugged. Here, though, there were no angry shouts or anxious whispers. The other men on the line were calmly standing in place or double-checking parts they had just installed. No one seemed surprised at what was happening. Then the worker completed his rethreading, put a new bolt in the door, and pulled the cord above his head again. The assembly line started moving at normal speed. Everyone went back to work.
“I just didn’t believe it,” Madrid said. “Back home, I had seen a guy fall in the pit and they didn’t stop the line. For so many years, I had learned you don’t stop the line, no matter what.” He had been told it cost $15,000 a minute to pause an assembly line. “But, for Toyota, quality came before income.
“That’s when it dawned on me, that we can do this, we can compete against these guys by learning what they do,” Madrid said. “One bolt, one bolt changed my attitude. I felt that I could finally, finally take pride in what I do.”
As Madrid continued his training in Japan, there were other surprises as well. One day he shadowed a worker who, midway through a shift, told a manager he had an idea for a new tool that would help him install struts. The manager walked to the machine shop and returned fifteen minutes later with a prototype. The worker and manager refined the design throughout the day. The next morning, everyone had their own versions of the tool waiting at their stations.
Madrid’s trainers explained that the Toyota Production System—which in the United States would become known as “lean manufacturing”—relied on pushing decision making to the lowest possible level. Workers on the assembly line were the ones who saw problems first. They were closest to the glitches that were inevitable in any manufacturing process. So it only made sense to give them the greatest authority in finding solutions.
“Every person in an organization has the right to be the company’s top expert at something,” John Shook, who trained Madrid as one of Toyota’s first Western employees, told me. “If I’m attaching mufflers or I’m a receptionist or a janitor, I know more about exhaust systems or receiving people or cleaning offices than anyone else, and it’s incredibly wasteful if a company can’t take advantage of that knowledge. Toyota hates waste. The system was built to exploit everyone’s expertise.”
When Toyota had first proposed this management philosophy to General Motors, the Americans literally laughed at their naïveté. Maybe that approach works in Japan, they said, but it would fail in California. Workers at the Fremont plant didn’t care about contributing expertise. What they cared about was doing as little work as possible.
“But the only way we would agree to the partnership was if GM promised to give this a try,” said Shook. “Our basic philosophy was that no one goes to work wanting to suck. If you put people in a position to succeed, they will.
“What we didn’t say was that if we couldn’t figure out how to export the Toyota Production System, we were screwed,” Shook said. “It’s the culture that makes Toyota successful, not hanging cords or prototyping tools. If we couldn’t export a culture of trust, we had no other ideas. So we sent everyone to America and prayed it would work.”
In 1994, two business school professors at Stanford began studying how, exactly, one creates an atmosphere of trust within a company. For years, the professors—James Baron and Michael Hannan—had been teaching students that a firm’s culture mattered as much as its strategy. The way a business treats workers, they said, was critical to its success. In particular, they argued that within most companies—no matter how great the product or loyal the customers—things would eventually fall apart unless employees trusted one another.
Then, each year, a few students would ask for evidence that supported those claims.
The truth was, Baron and Hannan believed their assertions were true, but they didn’t have much data to back them up. Both men were trained as sociologists and could point to studies showing the importance of culture in making employees happy or recruiting new workers or encouraging a healthy work-life balance. But there were few papers showing how a company’s culture impacted profitability. So in 1994, they embarked on a multiyear project to see if they could prove their assertion right.
First, though, they needed to find an industry that had lots of new companies they could track over time. It occurred to them that the flurry of technology start-ups appearing in Silicon Valley might provide the perfect sample. At the time, the Internet was in its infancy. Most Americans thought @ was something to ignore on a keyboard. Google was still just a number spelled “googol.”
“We weren’t inherently interested in tech and we had no idea the companies we were studying would become big deals,” said Baron, who now teaches at Yale. “We just needed start-ups to study, and there were tech companies getting founded nearby and so every morning, we would buy the San Jose Mercury News and go through each page, and whenever a young company was mentioned, we would put our team into pursuit to find a phone number or mailing address, and then send someone to see if the CEO would answer a questionnaire.” Over time, as they put it in a study they later wrote, “without realizing it when we started our study in 1994–1995, we assembled the most comprehensive database to date on the histories, structures, and HR practices of high-tech companies in Silicon Valley, just as the region was about to witness an economic and technological boom of historic proportions.” The project ended up taking fifteen years and examining close to two hundred firms.
Their surveys looked at almost every variable that might influence a start-up’s culture, including how employees were recruited, how applicants were interviewed, how much people were paid, and which workers executives decided to promote or fire. They watched college dropouts become billionaires and, in other cases, high-flying executives crash and burn.
Eventually, they collected enough data to conclude that most companies had cultures that fell into one of five categories. One was a culture they referred to as the “star” model. At these firms, executives hired from elite universities or other successful companies and gave employees huge amounts of autonomy. Offices had fancy cafeterias and lavish perks. Venture capitalists loved star model companies because giving money to the A-Team, conventional wisdom held, was always the safest bet.
The second category was the “engineering” model. Inside firms with engineering cultures, there weren’t many individual stars, but engineers, as a group, held the most sway. An engineering mindset prevailed in solving
problems or approaching hiring decisions. “This is your stereotypical Silicon Valley start-up, with a bunch of anonymous programmers drinking Mountain Dew at their computers,” said Baron. “They’re young and hungry and might be the next generation of stars once they prove themselves, but right now, they’re focused on solving technical problems.” Engineering-focused cultures are powerful because they allow firms to grow quickly. “Think of how fast Facebook expanded,” said Baron. “When everyone comes from a similar background and mindset, you can rely on common social norms to keep everyone on the same path.”
The third and fourth categories of companies included those firms built around “bureaucracies” and those constructed as “autocracies.” In the bureaucratic model, cultures emerged through thick ranks of middle managers. Executives wrote extensive job descriptions, organizational charts, and employee handbooks. Everything was spelled out, and there were rituals, such as weekly all-hands meetings, that regularly communicated the firm’s values to its workers. An autocratic culture is similar, except that all the rules, job descriptions, and organizational charts ultimately point to the desires and goals of one person, usually the founder or CEO. “One autocratic chief executive told us that his cultural model was, ‘You work. You do what I say. You get paid,’ ” Baron said.
The final category was known as the “commitment” model, and it was a throwback to an age when people happily worked for one company their entire life. “Commitment CEOs say things like, ‘I want to build the kind of company where people only leave when they retire or die,’ ” said Baron. “That doesn’t necessarily mean the company is stodgy, but it does imply a set of values that might prioritize slow and steady growth.” Some Silicon Valley executives told Baron they saw commitment firms as outdated, remnants of a corporate paternalism that had undermined industries such as American manufacturing. Commitment companies were more hesitant to lay people off. They often hired HR professionals when other start-ups were using precious dollars to recruit engineers or salespeople. “Commitment CEOs believe that getting the culture right is more important at first than designing the best product,” Baron said.
Over the next decade, Baron and Hannan kept close tabs on which start-ups thrived and which ones stumbled. About half the firms they studied remained in business for at least a decade; some became the most successful companies in the world. Baron and Hannan’s goal was to see if particular corporate cultures were more likely to correlate with success. They were unprepared, however, for how dramatically the impact of culture came through. “Even in the fast-paced world of high-tech entrepreneurship in Silicon Valley, founders’ employment models exert powerful and enduring effects on how their companies evolve and perform,” the researchers wrote in 2002 in the journal California Management Review. The enormous impact of cultural decisions “is evident even after taking account of numerous other factors that might be expected to affect the success or failure of young technology ventures, such as company age, size, access to venture capital, changes in senior leadership, and the economic environment.”
Just as Baron and Hannan had suspected, the star model produced some of the study’s biggest winners. As it turned out, putting all the smartest people in the same room could yield vast influence and wealth. But, unexpectedly, star firms also failed in record numbers. As a group, they were less likely to make it to an IPO than any other category, and they were often beset by internal rivalries. As anyone who has ever worked in such a company knows, infighting is often more vicious inside a star-focused firm, because everyone wants to be the star.
In fact, when Baron and Hannan looked at their data, they found the only culture that was a consistent winner were the commitment firms. Hands down, a commitment culture outperformed every other type of management style in almost every meaningful way. “Not one of the commitment firms we studied failed,” said Baron. “None of them, which is amazing in its own right. But they were also the fastest companies to go public, had the highest profitability ratios, and tended to be leaner, with fewer middle managers, because when you choose employees slowly, you have time to find people who excel at self-direction.” Employees in commitment firms wasted less time on internal rivalries because everyone was committed to the company, rather than to personal agendas. Commitment companies tended to know their customers better than other kinds of firms, and as a result could detect shifts in the market faster. “Despite its being widely pronounced dead in Silicon Valley in the mid-1990s, the Commitment model fares very well in our sample,” the researchers wrote.
“Venture capitalists love star firms because when you’re investing in a portfolio of companies, all you need are a few huge successes,” Baron told me. “But if you’re an entrepreneur and you’re betting on just one company, then the data says you’re much better off with a commitment-focused culture.”
One of the reasons commitment cultures were successful, it seemed, was because a sense of trust emerged among workers, managers, and customers that enticed everyone to work harder and stick together through the setbacks that are inevitable in any industry. Most commitment companies avoided layoffs unless there was no other alternative. They invested heavily in training. There were higher levels of teamwork and psychological safety. Commitment companies might not have had lavish cafeterias, but they offered generous maternity leaves, daycare programs, and work-from-home options. These initiatives were not immediately cost-effective, but commitment firms valued making employees happy over quick profits—and as a result, workers tended to turn down higher-paying jobs at rival firms. And customers stayed loyal because they had relationships that stretched over years. Commitment firms dodged one of the business world’s biggest hidden costs: the profits that are lost when an employee takes clients or insights to a competitor.
“Good employees are always the hardest asset to find,” said Baron. “When everyone wants to stick around, you’ve got a pretty strong advantage.”
The first thing Rick Madrid did upon returning to California was tell everyone what he had seen in Japan. He talked about the hanging cables, called “andon cords,” and about how managers took commands from workers instead of the other way around. He described watching assembly lines stop because some mechanic decided he needed more time to rebolt a door. He declared that everything at the Fremont plant was about to change now that NUMMI was in charge.
His friends were skeptical. They had heard this story before. GM had often said the company valued employee input—until employees began recommending changes that management didn’t want to hear. In the weeks before the NUMMI plant opened, the factory’s workers made sure their union memberships were up-to-date and held meetings to discuss tactics for fighting management, if it came to that. They voted to create a “NUMMI work-stoppage fund” to pay for workers’ expenses if they went on strike. They demanded—and NUMMI immediately agreed to provide—a formal system for filing grievances.
Then, NUMMI’s management announced the company’s layoff policy. “New United Motor Manufacturing, Inc., recognizes that job security is essential to an employee’s well-being,” read the company’s agreement with the United Auto Workers. “The Company agrees that it will not lay off employees unless compelled to do so by severe economic conditions that threaten the long-term viability of the Company.” NUMMI promised it would cut executive pay rather than fire workers and train people to sweep floors, repair machines, or serve meals in the cafeteria to preserve their jobs. Every employee complaint and suggestion, no matter how far-fetched or expensive, would be implemented, or a response would be publicly posted explaining why not. Every team was given authority to change their stations’ layouts and work flow. Anyone, at any time, could stop the assembly line if they saw a problem. No American car company had ever made so public a promise to avoid layoffs and respond to worker complaints.
Skeptical workers said that such pledges were easy to make when the plant wasn’t even operating yet, but they grudgingly agreed to play along. The factory began produ
cing Chevy Novas on December 10, 1984.
Rick Madrid was assigned to a team that stamped out hoods and doors from giant sheets of steel. It was immediately clear to him that things were different. People who once sought trysts in the storage room kept their hands to themselves. There was no obvious drinking on the job. The RV hadn’t returned to the parking lot. People were scared to try anything. They didn’t want to push their luck. This hesitancy, however, also had less useful consequences. No one was pulling andon cords or making suggestions because no one was eager to cost the factory $15,000 a minute. No one was sure it wouldn’t cost them their job.
A month after the plant reopened, Tetsuro Toyoda—NUMMI’s president, whose grandfather had founded Toyota in 1933—walked the Fremont floor. He saw an employee struggling to install a taillight that was wedged into a car frame at an odd angle. Toyoda approached the worker and, reading the name stitched on his uniform, said, “Joe, please pull the cord.”
“I can fix this, sir,” Joe said.
Smarter Faster Better: The Secrets of Being Productive in Life and Business Page 15
