PDF Summary:The Toyota Way, by Jeffrey K. Liker

How did Toyota grow from its humble beginnings in pre-WWII Japan to become the biggest automaker in the world? Why does the company guarantee job security to their workers, even during global crises? And how can you use Toyota’s methods to improve the efficiency of anything from a multimillion-dollar business to your own morning routine?

In The Toyota Way, engineering professor and lean manufacturing consultant Jeffrey Liker describes the work practices that led to Toyota’s meteoric rise and became known as lean manufacturing. Behind the scenes at Toyota, workers problem-solve on the spot and ruthlessly eliminate waste, and the company supports them by offering job security and constant on-the-job challenges. Liker also points out ways in which businesses commonly misunderstand or misapply these principles and offers advice on how to tailor Toyota’s methods to individual businesses.

In this guide, we describe Toyota’s methods and add tips on applying them outside the manufacturing sector. We also balance Liker’s account by discussing cases in which Toyota’s practices seem to conflict with its ideals.

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The Relationship Between the TPS and the Six Sigma Approach to Manufacturing

Toyota’s “lean” problem-solving process differs from the “Six Sigma” approach to production, which began as a competitive production model from Motorola. (The two approaches later merged into “Lean Six Sigma” in the early 2000s.) In general, Toyota’s lean production methods focus on efficiency, while Six Sigma methods focus on quality. (The name “six sigma” refers to the ideal situation in which the proportion of defects is six standard deviations—sigmas—away from the mean. This means that, in theory, 99.99966% of the time the process will produce a defect-free part).

The Six Sigma Methodology has five stages: Define, Measure, Analyze, Improve, and Control. While there’s some overlap (for example, the “Improve” Six Sigma stage identifies root causes and the “Control” stage is mirrored in Toyota’s standardized processes), Six Sigma is data-driven where the TPS is practical and experiential.

To make sure that problems stay solved permanently, Toyota standardizes all processes and makes sure they’re robust through poka-yoke (idiot-proofing).

Standardizing processes means that every task at Toyota, no matter how simple or quick, has a detailed set procedure (down to the number of steps you should take when walking from one place to another). Liker comments that when he spent time on a Toyota assembly line, there was a chart by the workstation describing his 45-second job that spelled out 28 separate steps in detail, including photos of each step. These charts and descriptions represent interim steps to be further streamlined through kaizen (continuous improvement).

(Shortform note: Liker argues that standardized processes free workers up to spend more time relaxing and connecting with one another. In practice, however, assembly line workers often feel significant pressure to complete repetitions of a task as rapidly as possible. As one assembly line worker commented in an interview, “workers do not even have a second to wipe the sweat off their faces.” While not a lot of analysis has been dedicated to easing workers’ stress on the assembly line, one study found that operators feel less burdened when they’re adequately staffed and have the opportunity to inspect and calibrate their own machines before beginning.)

Poka-yoke devices automatically detect potential or probable mistakes in the execution of a task. For example, one poka-yoke device might shine a light on one bin of parts to make sure the worker selects the correct part. Another device might use a light curtain to detect whether the worker’s hand has moved to the correct bin. If a poka-yoke device detects an error, an alarm sounds, prompting the worker to correct the error.

(Shortform note: Poka-yoke has developed into a whole field of its own, and there are now multiple ways of classifying poka-yoke devices. One of the classification systems focuses on whether the device prevents or detects errors, while another differentiates “control” from “warning” poka-yoke. Control poka-yoke structure the task so that it’s impossible to do it wrong—for example, microwaves are designed so that you can’t use them while the door is open. Warning poka-yoke alert you if you’re making a mistake—for example, car seat belt alarms beep when someone's seatbelt isn’t properly fastened, but they don’t prevent the car from starting.)

Toyota’s Lean Practices at the Management Level

In this section, we’ll examine the second level of Toyota’s approach: how Toyota manages its people. We’ll cover how Toyota shows respect for its employees, promotes leaders from the inside, prioritizes teamwork and consensus, and extends relationship-building outside the organization to the whole supply chain.

Toyota Respects Employees

According to Liker, Toyota shows respect to its employees by protecting their jobs, challenging them, and supporting them in their efforts to improve.

Protecting workers’ jobs. Toyota prioritizes job security for its employees, even through significant internal and external challenges. For example, during the Great Recession of 2008-2009, while other car manufacturers were letting thousands of people go, Toyota didn’t lay off any members of its regular workforce. Instead, team members worked intensively on kaizen when they weren’t needed on the factory floor. Managers also privately agreed to salary reductions so no team members would be laid off. In the course of normal business, employees whose roles are no longer needed as a result of routine kaizen are redeployed to other assembly lines.

Challenging employees. At Toyota, respecting employees means challenging them. The TPS, with its lack of time buffers and inventory to hide behind, compels employees to think on their feet. Liker says that workers participate in voluntary “quality circles” outside of working hours in which employees work on complex problems together.

Supporting employees. Toyota uses a flipped org chart in which workers on the factory floor are at the top (the highest priority), says Liker. The primary role of a team leader is to support his or her team. Team leaders step in for workers who are sick or on vacation, coach team members in a hands-on way, and routinely watch their team work to prevent problems and improve processes.

Respecting Employees: Theory vs. Practice

Critics argue that Toyota doesn’t always practice what it preaches when it comes to caring for its employees. Engineer Darius Mehri, who worked as an engineer at a Toyota supplier and interviewed Toyota workers, argues that Toyota endangers its employees with unrealistically fast line speeds, with up to 50% of its current workers battling work-related health problems. Many have lost fingers or have suffered burn or crush injuries due to attempts to save space in and around their workstations. Mehri also argues that Toyota under-reports injuries (a common practice in Japan).

Protecting jobs. Liker concedes the distinction between the “regular workforce,” whose jobs are protected at all costs, and the “variable workforce,” which consists of temporary employees who can be (and often are) let go quickly. He doesn’t, however, go into detail about temporary employees. Temporary workers constitute over 30% of the assembly line in most Toyota factories in Japan. They make 60% less than the regular employees, don’t receive benefits, and may feel like outcasts or second-class citizens.

Challenging employees. Liker notes that quality circles in Japan are held outside of working hours and are theoretically voluntary, but all employees are expected to attend. Some critics argue that “challenge” crosses the line into exploitation, potentially endangering the health and even the lives of employees. For example, 30-year-old Kenichi Uchino collapsed and died after working 155 hours of overtime (110 unpaid) in the month leading up to his death, and a Camry chief engineer died of a heart attack after clocking over 80 hours of overtime the previous month. Multiple workers have also committed suicide due to stress.

Supporting employees. Some argue that Toyota doesn’t support its employees, instead enmeshing them in a net of strict rules that govern what they do both inside and outside work. At work, employees follow “rigid military-style rules” that govern minute details of their behavior inside the factory. Outside of work, employees must report to their managers on details such as their commutes and vacation rest stops.

Toyota Promotes Leaders From the Inside

Instead of hiring CEOs from outside the company, Toyota maintains a stable culture by promoting leaders from within. Current leaders are charged with preparing new leaders.

Liker points out that this practice:

1. Ensures that managers have a broad and deep understanding of the company.
2. Protects against large swings in company culture (as often happens when new “superstar” CEOs are brought in from the outside).
3. Ensures that the decisions made by the CEO are in the best long-term interests of the company. Externally hired CEOs may be drawn to changes that favor short-term, superficial boosts to build their reputations and justify their multimillion-dollar salaries.

(Shortform note: Promoting leaders from within also helps to keep lower-level employees happy. Employees who feel they’ve been overlooked in favor of an external hire are more likely to quit or consider quitting, while employees in companies that manage promotions well are more motivated to put in extra work and less likely to leave the company.)

Toyota Encourages Teamwork and Consensus Decisions

Liker comments that Toyota teams function as extremely cohesive units. He speculates that this is because Japanese children learn teamwork at school from an early age. When making decisions, all group members offer their views and all of these views are considered in reaching the final decision. Liker comments that for big decisions, there’s usually a long consensus-building process in the leadup to the formal meeting (a process known as nemawashi (literally “digging around the roots”)), so that by the time the formal meeting is held everyone is already in agreement.

(Shortform note: This is consistent with The Culture Map author Erin Meyer’s depiction of Japanese culture as heavily consensus-driven despite its hierarchical corporate structures. Meyer also comments elsewhere that consensus decision-making cultures are a perfect fit for car manufacturers, an industry with lengthy development processes and extremely high product standards.)

Toyota Builds Strong Relationships With Supply Chain Partners

While Toyota is slow to accept new suppliers, first making them “audition” with a series of small orders, once a supplier is in the chain Toyota is loyal and slow to replace them. Toyota shows respect for its supply chain partners by challenging them to engage in intensive kaizen. This helps the supplier increase its own efficiency. Suppliers are incentivized to engage in kaizen through the “target cost system”: Toyota calculates how much the part should cost in the first year and asks for price reductions each subsequent year (on the basis that the supplier’s kaizen practices should be reducing the cost on their end). Liker comments that Toyota is most suppliers’ favorite customer, despite its exacting standards.

Toyota also supports supply chain partners as needed, for example by making advance payments to suppliers that are struggling or offering financial assistance to dealers during the COVID-19 pandemic.

Toyota’s Relationships With Suppliers

Are Toyota’s relationships with its suppliers as healthy as Liker claims? There’s evidence to suggest they might not be. Some suppliers have stated publicly that the target cost system is unrealistic and cruel, especially given inflation and the increasing costs of raw materials. As the manager of one supplier commented in 2010: “Toyota just squeezes us, like it’s trying to wring water from a dry towel.” This approach is especially hard to swallow for suppliers when Toyota continues to post record profits.

Some supply chain workers believe that Toyota’s “just-in-time” system isn’t designed to solve problems but to push them back onto suppliers, which in turn struggle to cope. To reduce costs, some suppliers allegedly hire foreign guest workers, some of whom are victims of human trafficking, and pay them a fraction of the minimum wage, threatening them with deportation if they complain.

Unusually, Toyota also helps its competitors, believing that competition makes everyone stronger. For example, Toyota shared hybrid technology with other automakers and opened its hybrid patents in 2019. (Shortform note: A more cynical take on this is that opening the patents was intended to discourage competitors from leaping over hybrid technology and going straight to fully electric vehicles, an area in which Toyota can’t compete well.)

Toyota’s Lean Practices at the Whole-Organization Level

In this section, we’ll cover aspects of Toyota’s approach to business that operate at the level of the whole organization. We’ll cover why Toyota is cautious when introducing new technology, how it ensures that goals are consistent throughout the company, and how long-term systems thinking governs high-level decision-making.

Toyota Takes a Cautious Approach to Technology

Liker writes that Toyota sees large investments in technology, for example specialized robots, as risky. The company learned this lesson in 1991, when a new, highly automated Lexus plant had to be shut down due to an economic downturn. This mistake taught Toyota that technology should support people, not replace them, and the company is now much more selective in using new technology. Simpler tasks that need limited space can be delegated to robots, but for more complicated tasks, people are a more flexible resource.

(Shortform note: Some commentators have suggested that Tesla made the same miscalculation, relying too much on automation and failing to appreciate the advantages of human workers in responding flexibly to unexpected situations.)

Toyota Aligns Goals and Learns as a Whole Organization

At Toyota, managers ensure that people’s goals are aligned through hoshin kanri (policy deployment), which means that managers and workers are in continuous dialogue about the shifting priorities of the organization. Unlike most other Toyota processes, hoshin kanri operates in a top-down manner. The author explains that high-level management determines strategic priorities on a yearly basis at the start of the fourth quarter, communicates them to the whole organization, and then trusts managers to cascade them down into on-the-ground realities.

(Shortform note: Toyota’s combination of bottom-up consensus decision-making and top-down hierarchical decision-making is one of its strengths. Some Japanese companies rely too heavily on consensus decision-making, which makes them slow to adapt to changing circumstances. Some experts even argue that it was Japanese electronics company Sharp’s top-down decision-making style that caused the company to fail.)

At Toyota, kaizen applies everywhere, not just at the genba. All Toyota workers are charged with experimenting and continuously improving systems using Plan-Do-Check-Act cycles, meaning that learning occurs at the level of the whole company. Liker argues that hansei (“critical reflection”), a Japanese cultural practice, supports the drive toward constant improvement. When Japanese children behave badly, they’re told to “do hansei,” which means they should feel very sorry about what they did and think hard about how they can improve. (Liker notes that Japanese Toyota managers had considerable difficulty in teaching hansei to US managers.) Toyota holds hansei meetings after trying out new ways of doing things, even if the innovation was a success, to identify ways in which it could have been done even better.

(Shortform note: According to Liker, Toyota is an exceptional example of a “learning organization,” a term introduced by Peter Senge in The Fifth Discipline. However, Toyota’s razor-sharp focus on incremental improvement at the practical level may explain why its employees tend to be poor at creative thinking and deep innovation, skills that flourish when time is allowed for unfocused thinking.)

Toyota Takes a Long-Term, Holistic Perspective

Underpinning all of the practical measures in the TPS is Toyota’s overall approach to doing business. Toyota, Liker argues, is successful because: (1) It focuses on adding value in the long term, and (2) it favors holistic or systems thinking.

1. A long-term focus on the goal of adding value. Toyota focuses on the greater good: Its main aim is to create value for its customers and for society in general. Protecting workers’ jobs and halting the production line for minor defects aren’t quick fixes, nor are they directly profit-focused. Liker asserts that the company is focused on long-term success: Retaining employees during downturns means fewer new employees to train when the situation improves, and detecting defects quickly saves time and money later on. Toyota’s practice of building massive cash reserves instead of sharing profits with workers or shareholders is also part of its long-term strategy.

(Shortform note: Toyota may be slightly more profit-focused and slightly less principled than the image Liker constructs. For example, the company’s noble environmental goals aren’t consistent with some of its public statements, which have criticized the attempts of several countries to tighten emissions standards, improve fuel efficiency, and focus on electric vehicles. Toyota also opposed California’s Clean Air Act and eventually paid a $180 million fine for failing to report defective exhaust pipes under the same Act. A 2021 report named Toyota as the third-worst offender in the world—behind only Exxon Mobil and Chevron—in lobbying to obstruct climate-friendly policies.)

2. Systems thinking. Also called holistic thinking, it means looking at the “big picture”: how the parts of a system work together. (Shortform note: Holistic thinking contrasts with analytic thinking, which focuses on the details of the parts.)

Liker suggests that this type of thinking has cultural roots. He points to the Zen Buddhist cultural environment and cites arguments that rice farming promotes teamwork. (Shortform note: This is the “rice theory” of cooperation, which proposes that the farming method for staple crops in a particular community affects the interpersonal dynamics in that community. Rice farming requires teamwork and large-scale coordination to consistently irrigate large areas, which arguably promotes cooperation. Wheat can be farmed by small family groups, which promotes independence.)

Japanese Cultural Influences on Toyota’s Practices

Liker suggests that the tendency of Toyota workers to think holistically is cultural, citing research showing that people living in Asian communities tend to pay more attention to context than people in Western communities. Studies have found, for example, that North Americans notice big, fast-moving objects in the foreground of a video, while Japanese people are drawn to the background and to the relationships between the objects.

What explains this difference? Erin Meyer argues in The Culture Map that Asian people tend to think holistically because of the philosophies that shaped their cultures. For example, Taoism (which went on to deeply influence Japanese philosophies) emphasizes harmony and balance in both natural and social relationships.

Conclusion

Throughout the book, Liker shares practical advice on implementing lean systems that he’s gleaned from many years working with Toyota and serving as a TPS consultant. We’ve compiled and summarized this advice here, along with additional tips for applying lean principles outside the manufacturing sector.

Practical Advice for Implementing Lean Systems

To implement lean systems in a business for the first time, Liker recommends the following:

1. Tailor it carefully to your business. Replicating or benchmarking Toyota processes misses the point. As you problem-solve and improve, your version of lean will grow to fit your own business perfectly. It may not look anything like Toyota’s version.
2. Start with a cleanup. A big cleanup (ideally using the 5S method) allows you to visually monitor the changes. However, the cleanup is only the beginning.
3. Tackle heijunka early. Uneven production is the cause of many wastes. Evening out production is challenging, but doing this first will save time in the long term.
4. Start small and be patient. Pilot lean ideas by creating a one-piece flow cell for a small part of the assembly line. Experiment with kaizen inside that cell using Plan-Do-Check-Act cycles.
5. Maintain gains through close management. Toyota team leaders monitor their team daily to make sure efficiency gains don’t slide backwards.
6. Train your employees in problem-solving. If your workers don’t know how to solve problems when jidoka exposes them, production will go down rather than up.
7. Make it a priority to coach new leaders. A key role of managers should be to train future managers.

Applying Lean Ideas Outside Manufacturing

While Liker gives some examples of businesses that have applied lean ideas outside the manufacturing sector, these are still broadly in the area of producing goods: software systems and assembling gift baskets. What about more complex work that doesn’t culminate in a tangible product?

An increasing number of hospitals are applying lean ideas to both administrative processes and patient care, with some proponents arguing that lean principles can save lives. The lean approach has also helped nonprofit organizations streamline their processes.

Some lean principles seem to work better than others in different sectors. For example, while Liker argues that the “just-in-time” principle can apply to information flows in knowledge work, there may be frustrating mismatches between the amount of information a manager wants to share and the amount of information an employee needs. The best solution may be to balance lean “just-in-time” learning with more traditional “just-in-case” learning.

In an office environment, you can apply TPS principles to both the physical layout of the office and the knowledge work itself. In knowledge work contexts, employees can learn to:

• Eliminate waste

• Record, standardize, and improve the parts of their job that they repeat often

• Improve communication throughout the organization

• Solve problems quickly at their root

• Encourage a “coach” mentality in leaders.

Note, however, that if the knowledge work is primarily based on creativity and innovation, implement lean principles with caution—applying these principles too enthusiastically can eliminate as “waste” the unstructured time that’s necessary to experiment with new ideas. As Liker advises, make changes gradually.

Liker also warns against common mistakes. When implementing lean systems, don’t:

1. Make sudden, sweeping changes throughout the whole organization. This is the most common mistake people make when implementing lean systems, and it usually ends in disaster. Experiment in depth with a small one-piece flow cell first, then gradually extend these practices to other parts of the organization.

2. Focus too much on superficial changes. Lean production is about more than just mechanistic processes. Implementing it superficially or in piecemeal fashion might lead to immediate gains, but these won’t be stable. Make sure your treatment of people changes alongside the physical processes.

3. Believe that lean will “fix” things. Lean processes are designed to “break” and reveal problems. Don’t be surprised if there seem to be more problems, not fewer, when lean systems are first introduced.

4. Get rid of middle management. Some organizations flatten their org chart when implementing lean systems. This is a mistake because it overburdens high-level leaders with direct reports, meaning that daily contact (which preserves efficiency gains and affords intensive coaching) is lost.

5. Declare it finished. Implementing lean systems is an ongoing activity throughout the life of the organization. As long as you’re still problem-solving and improving, you’re implementing lean systems.

Also Pay Attention to Leadership Involvement and Employee Morale

While the five common mistakes Liker cites stem from management overreach, some companies make the opposite mistake: too little top management involvement. According to Lean Factories, a manufacturing blog, top management sometimes takes a hands-off approach to implementing lean systems, which sends employees the message that lean programs aren’t that important. Further, when top leaders are disengaged, they can’t properly assess funding requests for lean efforts.

Also, while Liker’s “mistakes to avoid” touch on employee morale, he doesn’t explore it in depth. If you’re planning to implement lean systems in your organization, Lean Factories recommends you also keep these morale-related tips in mind:

• Don’t implement lean systems for the sole purpose of cutting costs. Some companies create lean systems so they can spend less on overheard—in this case, the message you’re sending to your employees is that the more efficiently they work, the less job security they have. This can lead to low morale at best and sabotage at worst. Instead, use lean processes as a way to facilitate learning, growth, and expansion.

• Don’t place the lean burden on one department. When employees on the shop floor are working hard to create products and there are a select few who tell them how to work faster, or better, this breeds resentment. Rather than having management impose lean systems on the factory workers, the systems should be applied to every department in the company.