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Leadership Lessons from Turnarounds #02 OE Newsletter

The annals of 2012 include the stories of two notable turnarounds in Japanese companies…

  • Japan Airlines represented one of its nation’s and the aviation industry’s biggest corporate failures when it went bankrupt in 2009. After just about three years of turnaround work, mostly under the leadership of Kazuo Inamori (the former CEO and founder of the electronics firm Kyocera ), JAL’s IPO in September, 2012 was the world’s second largest last year, surpassed only by Facebook’s.
  • Meanwhile, Toyota has once again become the number one automaker in the world, having regained lost ground after a slew of problems in the last four years. Two of the most serious were the major supply chain difficulties in the aftermath of the 2011 tsunami and, of course, the mishandled product recalls with associated scandals, public apologies, expensive settlements, and loss of customer trust.

Many forces affected the fortunes of these two companies, including, in JAL’s case, large government bailouts. But looking into the behaviors and policies of their leaders is nonetheless highly instructive. You won’t see the word “lean” mentioned anywhere in these stories, but the connection between their success strategies and what is truly behind a lean enterprise shines through.

Japan Airlines: Enlightened leadership guides the way out of bankruptcy

Kazuo Inamori repeatedly refused to take over the helm at Japan Airlines when the government asked him to do so after JAL failed. “I declined the offer numerous times because I had no clue about airlines,” he told the BBC. Nevertheless, he eventually took the job because, as he said, “if we couldn’t revive JAL, it would have been a huge blow to Japan’s economy which was already struggling.”

Under the leadership of this highly successful 80-year-old “amateur,” turnaround has been the name of the game for JAL. The recovery required deep cost cuts, drastic reductions in what had become a bloated headcount, the elimination of unprofitable routes, and major government bailouts. But it also depended heavily on improving service to compete with other upscale carriers, and radical culture change. Inamori cited his biggest challenge to be changing JAL’s “rigid and bureaucratic” corporate culture.

He led that change with a philosophy he has used since he founded Kyocera at age 27. “My simple philosophy is to make all the staff happy,” he said. “Not to make shareholders happy but simply to create the company that every employee is proud to work for. Many people were skeptical if such a simple philosophy would work but in the end, it did.”

Inamori’s philosophy is more than platitudes. It is underpinned by a system he created when he founded his company as a young engineer with “no money, no experience, no advanced technology, and no sufficient facilities.” He called the system Amoeba Management because of the way it divides an organization into small units that operate as highly autonomous mini profit centers. Ultimate accountability for profitability is distributed among all employees in every area. JAL executives credit his management system for reviving the group and this brief CNN video shows a sliver of it in action.

In his recently translated book, Amoeba Management: The Dynamic

Management System for Rapid Market Response (Productivity Press 2012), Inamori provides an in-depth overview of his innovative system, including the use of simplified profit and loss statements (“hourly efficiency reports”) that can be used by anyone, regardless of their level of accounting knowledge. The statements make the company’s situation transparent to all in real time, not as historical information. This tool is the fulcrum for a wide range of objectives: maximizing added value, simplifying cost management, cultivating leaders, and opening the way for all employees to participate in management.

Inamori added a more personal touch to foster the new culture, especially geared for those who were unhappy with the changes and with the compulsory sessions designed to instill the teachings of the JAL Philosophy handbook. “I brought six cans of beer after these sessions or to people who were working late,” he said. “After a beer or two, people opened up and told me their honest opinions.”

Toyota, “reborn”

Late last month, Akio Toyoda (Toyota’s president and the grandson of the founder) unveiled the 2013 Crown sedan in Japan. Traditionally a conservative car targeted to the needs and tastes of Japanese executives, the latest version—redesigned and painted hot pink—shocked consumers and created something of a media frenzy.

The automotive reviewers at Edmunds.com commented: “Genius or crazy? Maybe this new pink Toyota Crown is joyously a bit of both.”

As the car was unveiled, a sign projected above it featured one word:

“Reborn.” Akio Toyoda personally authorized a major design change for the Crown. Toyota needs to attract a younger, more diverse customer base—and this car makes a statement that Toyota is moving into the future. The design decisions were not universally supported at the company. But the prime motive was to mount a dramatic image change. As Toyoda commented, “Being reborn does mean taking on new challenges.”

The company’s setbacks have in fact given it a license to face its challenges by taking new risks, according to Toyota executives. A series of significant changes have ensued over the past couple of years, as Toyota has been forced to take a hard look at policies and global operations, including these:

  • In 2011, Mr. Toyoda guided the company into more streamlined shape at the top. He cut a layer of management and drastically reduced the board from 27 members to 11.
  • The company’s vision has veered away from specific numerical targets for market share growth, and honed in on a more qualitative vision focusing on sustainable growth, emerging markets, profitability, and eco-friendly cars.
  • Quality control responsibilities are being delegated globally, with broader powers being given to regional safety executives in North America, Europe, and Asia.
  • For the first time, vehicle design responsibility was fully transferred to a U.S. group. The new Avalon is the first prototype to be developed at Toyota Technical Center in Ann Arbor rather than in Japan. As chief engineer Randy Stephens put it, “there is a feeling of ownership of this car here.”

Dealing with the recalls and other problems has been onerous and difficult “but it created an opportunity to change,” said Stephens. Toyota seems to be taking good advantage of that opportunity, and it seems to be working.

The leadership takeaways

What are some leadership lessons from these turnarounds? There are many, but here are a few that resonate with lean strategies:

  • A deep reservoir of customer goodwill and trust is an enormous asset that can yield long-lasting benefits, even in severely trying times following major missteps.
  • Hardships create “silver lining” opportunities—windows for radical change. Having the insight to see them and the courage to take the risks required to leverage them can be instrumental in any turnaround.
  • “The numbers” play a big role in any company’s success story; but the humans that comprise organizations are generally more interested in non-quantitative goals. Smart leaders get that, and they set up visions and systems that truly reflect it.
  • Effective leaders play a hands-on role in directly engaging people on the front line.
  • Delegating authority systemically to the people who are closest to the action—with appropriate control measures and information to ensure alignment—is the ideal way to gain responsiveness and cultivate leaders at many levels.

Ask the consultants

Q. We’re working on improving our operations, but how do we know if our overall business strategy is healthy? Are we “improving” on a business model that’s facing obsolescence?

A. Most managers spend too much time in the operational “weeds,” focused on day to day urgent things. It’s a good practice to pop your head out and look around at the horizon regularly, to objectively challenge your business assumptions. Learn three key questions to get you started, and two key symptoms of an unhealthy organization in Jim Vatalaro’s column, Do You Have a Healthy Business Strategy?

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