Toyota’s Functional Organization

In this month’s question over on the Lean Edge Klaus Peterson, Solar’s Group process manager asks about how to transform a silo based organization into a more horizontal one focusing on business practices.

Here is my response posted over on the Lean Edge.

I don’t have a very snappy answer with five insightful key points for the question posited this month. The question posed is a fairly common one and yet I fear that is potentially problematic in one regard. The question of “how do I…” (fill in the blank with most any topic) is actually referring to an action item that has been decided upon as a solution to a problem. For individuals with extensive background inside of Toyota we have a hard time engaging in this manner. Up front we like to know more about the background and current situation and what exactly is the problem your organization is facing? Once I understand and agree upon the problem definition then I also would like to know what is your goal and how will you measure success? Then I will be a stickler for analyzing the cause or causes of the problem and debating what is the best solution space. Jumping to an action item such as reorganizing in a more “horizontal” or “business process” fashion is not something I can connect with mentally without further information. Hence my reluctance to provide key transitional points of advice.

I think it is worth noting that in reality Toyota historically in Japan in particular is very much an organization that consists of highly functional departments. Product development, production engineering, purchasing, finance, IT, HR, manufacturing, etc. are in reality functional silos. One of the amazing things about Toyota is how well it manages across these silos to promote improvement and develop people. In most companies I realize this is not the case and hence in all likelihood the question (solution) posed this month. Maybe a reorganization of the company into a more horizontal type is a good solution. However again without thorough knowledge of the problem, the goal, and causes, etc. I don’t feel comfortable in automatically advocating this type of change.

Part of the background confusion on this topic I think stems from the best selling workbook “Learning To See” drafted by my colleagues Mike Rother and John Shook for the Lean Enterprise Institute. In the United States at least Jim Womack for the better part of the past decade has lectured companies on the need to reorganize their thinking patterns and act in a more customer focused fashion. The proffered advice is normally to appoint “value stream managers” across the organization who align more with product flow and better customer focus. Many companies take this step even further and break down functional departments into horizontal cross functional value stream teams (product and/or customer focused). There are indeed benefits to this approach however there are also pitfalls as well. I will try and elaborate on this dilemma in further detail.

The concept of the value stream manager has some roots in the technique Toyota applies to analyze lead-time and product flow from raw materials to finished goods to customer delivery across an organization. Toyota internally calls this material and information flow analysis. In most countries it goes by the sub-title of the LEI workbook “Value Stream Mapping”.  The concept also has some very loose roots in the concept of a “chief engineer” in Toyota who with a very small team has broad powers and works across the functional silos of product development inside of Toyota.

However it is critical to note that while Toyota has techniques like value stream mapping which can be applied in a horizontal fashion and a chief engineer (only in product development by the way) who is charged with working across the organization in a horizontal way the company itself is not organized in a horizontal fashion at all. The legendary Kamigo plant that I worked in has been functionally aligned since the founding days under Taiichi Ohno. Casting has a casting manager with multiple products produced. Machining and engine assembly have functional managers with multiple types of products produced. The same is true of the vehicle plants with managers for stamping, welding, painting, plastic injection molding, and assembly, etc. Until you reach the level of plant manager there is arguably no one with control from raw materials to finished goods in any given facility. Small exceptions exist to this reality but this organizational design is the general rule for the major plants and the rest of the company.

So why does Toyota value functional silos so much in manufacturing or product development for that matter? The answer is quite easy. Despite the drawbacks (which can be overcome by leadership and management) functional silos are excellent for the purpose of developing deep expertise in people and maintaining technical standards. This is critical especially in engineering disciplines for the majority of personnel. Also the functional silos are better equipped to develop and maintain things like knowledge and technical standards. Having a horizontal focus will focus more naturally on the customer however each value stream (if not managed properly) might easily develop its own standards and knowledge base, etc. There is no reason why 20 value streams for example will naturally collaborate on these types of issues or others, etc. You can wind up with a lot of redundancy and competing approaches to the same fundamental topic. Switching from a vertical organization to a horizontal one just changes the types of problems you will need to overcome. Both have inherent flaws.

Please note that I am not making a case here for either vertical or horizontal organizations. I can easily argue either way. The real question is what is your current situation and set of problems? What is your goal? What are the causes to the problems? And then what are the best countermeasures to the situation. Reorganization around business processes or customer products may or may not be part of the solution. I just don’t know from where I sit. It is quite possible that a functional silo and matrix type of approach like Toyota with an emphasis on knowledge and people development is quite all right. However you need to counteract this with a collaborative culture, metrics and management behavior that promotes collaboration and not just self-optimization. And of course you will need techniques (product focused layout, pull systems, value stream mapping, takt time, pull systems, Jidoka, etc.) and methods that help align operations towards the customer who in the end we must serve. If that still does not work the million dollar question is still – why?