Process vs. Results Orientation: The Role of Metrics

May 3, 2009 - Tags:

Believing they can get any behavior they can measure, companies wishing to emulate Toyota’s system often ask me about its metrics. To their inevitable disappointment, they learn that Toyota is not particularly strong at developing sophisticated and common metrics across the company. Toyota measures processes everywhere on the factory floor, but prefers simple metrics and does not use many of them at the company or plant level.

There are at least three types of measures at Toyota:

  1. Global performance measures—how is the company doing? At this level, Toyota uses financial, quality, and safety measures very similar to those used by other companies. When I queried whether the listing of Toyota Motor Company on the N.Y. Stock Exchange made them more short-term-focused, they assured me that was not the case. They did say that now they must report financial results quarterly, when in the past they used to report annually. They found the quarterly reporting very useful. Prior to this, they were arguably less sophisticated in financial measurement than other companies listed on the stock exchange.
  2. Operational performance measures—how is the plant or department doing? Toyota’s measurements seem to be timelier and better maintained than what I have seen at other companies. The people doing the work at the work group level or the project manager’s level painstakingly track progress on key metrics and compare them with aggressive targets. The metrics tend to be specific to a process.
  3. Stretch improvement metrics—how is the business unit or work group doing? Toyota sets stretch goals for the corporation, which are translated into stretch goals for every business unit and ultimately every work group. Tracking progress toward these goals is central to Toyota’s learning process. Again, Toyota does the tracking at the work group and project level. The measures are very particular to what the teams are trying to accomplish.

I recall talking to Wayne Ripberger, who at the time was the VP of Powertrain manufacturing for Toyota in Georgetown. I asked what they measure at the plant level to track its performance. I was expecting insights into the golden metrics that drive any manufacturing plant. He said they track total cost for plant operations, a few simple quality measures like parts per million defects, and productivity. They of course keep track of safety by measuring accidents and do some employee morale surveys. There was nothing new here, except for one thing. Ripberger explained that the one measure he found most useful as a manager was the number of andon pulls made by each department, to stop the production line. The departments regularly graph the data, noting the problems that caused each of the andon pulls, and use Pareto analysis to identify the most common reasons. Then they go to work on countermeasures. Obviously you must have a well functioning andon system before this metric makes any sense. But when in place, this metric provides great insight into the actual day-to-day problems faced in the production process.

The difference between Toyota and many other companies is that Toyota is process oriented. In one study I worked on with Tom Choi, we tried to understand why some companies had vital continuous improvement programs while others had superficial programs that died before they got going. We discovered the top management in the companies with vital programs had a process orientation, while the unsuccessful companies had results-oriented managers. The results-oriented managers immediately wanted to measure the bottom-line results of the continuous improvement program. The process-oriented managers were more patient, believing that an investment in the people and the process would lead to the results they desired.

In short, developing standard, global metrics is not a high priority at Toyota. They do it as simply as possible. More important to them are the metrics driving problem solving and supporting their process orientation. The most important learning measurements track progress toward stretch improvement goals, which is the process called hoshin kanri.