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Organizational Slack and Toyota's Innovation

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Organizational Slack And Toyota's Innovation

Organizational slack, by Lawson’s definition, is that “cushion of actual or potential resources which allows an organization to adapt successfully to internal pressures for adjustment or to external pressures for change in policy as well as to initiate changes in strategy with respect to the external environments.” As efficiency has been considered a primary principle in business over the past twenty years, this slack, necessary resource that are important for the future in terms of flexibility, innovation, and learning have been eliminated. These resources or slacks, however, are often essential to the survival of businesses providing the value. Therefore, let us examine the significance of this organizational slack and learn about how they can be adopted and maintained in a business through the example of Toyota Principle.

To understand the importance of organizational slack, we can take a look at what outcomes we can experience without them, why we need them, and how to keep them in a business. First, what happens when slacks are eliminated? The disasters related to nuclear and health care are good examples. The accident of Three Mile Island nuclear-power plant in 1979 was a result of not taking time to use the available knowledge which was necessary to avoid it. The nuclear accident in Takaimura, Japan, in 1999 was due to shortcuts in training and safety activities in response to pressures to increase uranium fuel production. In health care industry, a great number of Americans are killed each year because of medication whose approval by FDA has been faster with increased number in kinds. Had efforts been made to build time and process for these cases, they would have been prevented.

Second, why do we need slack? We know that the organizations need to develop strategic flexibility, the capability of a business to proact or respond quickly to changing competitive conditions and secure competitive advantage. The conditions of certain organizations challenge this capability even further without the cushion. For example, some technologies involve systems with such interactive complexity that cannot be fully predicted or controlled. High-reliability organizations that deal with dangerous technologies need a slack for adopting the tools to keep them safe even with expensive redundancy, time, and other resources. The medical systems respond to pressures for efficiency ignoring the fact that they do need more time and care to minimize medical accidents. When GM cut the cost for their staff resource, the strike at a part plan also stopped assembly plants and lead to the sales loss of $2.2 billion because the company ignored the system interdependency. The organizations that need complicated technology that are not visible or not readily comprehensible and brings complex-system interactions should make investigations in extensive and frequent manners. Weak investigations lead to inconclusive diagnoses that can result in such disasters as plane crashes. In addition to these, today’s high demands on organizations include more innovation, flexibility, and speed that require managing knowledge. The time to learn to give room for development and collaboration and the time to create organizational knowledge that is a key to strategic resource are essential to meet this demand. All these conditions represent the strong need for organizational slack.

Third, how can we keep the slack in the organizations? The decision makers need to think before cutting out slack. They should recognize the value of resources that facilitate processing and learning and knowledge creation and should not sacrifice them in pursuit of short-term efficiency. The managers may design in slack in the organizations. To benefit from more and more complex interactions, information, and technology that we are asked to use, they need to add back the time to consider, discuss, and process input. Lastly, they have to understand thinking as work and learn from what we have seen so far. The interacting parts of complex systems are to be managed based on their relationships. To admit that it takes time to understand the relationship and learn from the examples of high reliability organizations and others will be true investment in an organization’s future.

The concept and examples of this organizational slack are shown by a book, “The Toyota Way,” written by Jeffrey Liker (2004). From the book, we can find out that Toyota not only value the concept but also have designed it in its principles.

From their fourteen principles, there are four outstanding values that are strongly related to the concept of organizational slack- the first, fifth, thirteenth, and fourteenth principles. The first principle says, “Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.” The “long-term” focus is the fundamental part of their principles and the base that encompasses flexibility or organizational slack. For instance, Toyota’s commitment to doing the right thing for the customer is shown when it paid back every customer and dealer who had paid extra tax on a Toyota car, at the expense of short term gain, because of initially charged but later reversed import surcharge on foreign cars in President Nixon’s duration in 1971. The money they lost in doing this can be considered an example of organizational slack because it was the resource that the company used to adapt to the changing environment where long-term commitment to market is crucial. In addition, in that Toyota was the only company who did it, its long-term thinking must have been the first step to innovation.

The fifth principle is to “Build a culture of stopping to fix problems, to get quality right the first time.” Stopping for quality is a designed time for the organizational slack. Toyota knew that “solving quality problems at the source saves time and money downstream.” The system called “andon” gives warning lights and stopped the station with problem after certain time so that the team leaders can find and fix the problems. This has never been more important to Toyota than they developed Lexus which needed to meet the extremely high expectations of luxury car owners. Though the company could be satisfied with generally higher standards than those of competitors’ high end cars, Toyota strictly applied this to Lexus. In 2002, the Lexus was the best-selling luxury car in the U.S. If Toyota wants mere efficiency for the production, the justification for the time to market could take precedence over the right process. This is what happened to the airplane case mentioned above. The airplane was not investigated thoroughly and caused an accident, but Toyota does take time to find a complete solution for best quality that moves to continuous innovation.

The thirteenth principle says, “Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly.” The decision parameters here are to “find what is really going on (go-and-see) to test,” “determine the underlying cause,” “consider a broad range of alternatives, “build consensus on the resolution,” and “use efficient communication tools.” This principle was also applied to designing of Prius. For example, in developing the new suspension, 20 different ones were tested under a competition. As for the hybrid engine technologies, 80 different hybrid types were initially considered before and narrowed down to 10 later. They spent even 80% of time planning and delay decisions until they have considered broad alternatives. As a result, Prius is now considered one of the great innovation products among the hybrid-cars in automobile industry.

The fourteenth principle is “to become a Learning Organization through relentless reflection and continuous improvement.” Liker argues that Toyota is the best learning organization he has ever seen mentioning Senge’s point of the learning organization (Senge, 1990): “A learning organization does not only adopt and develop new business or knowledge, and capabilities. To become a true learning organization, the very learning capacity of the organization should be developing and growing over time, as it helps its members adapt to a continually changing competitive environment.” Indeed, Toyota has helped its members adapt to a changing environment and grown over time, which exactly matches the concept of allowing organizational slack. According to Liker, “the company sees standardization and innovation as two sides of the same coin.” If one employee comes up with innovative ways to do things, it gets transferred to organization learning so that the learning will be standardized and practiced throughout the organization until a better way, a new innovation standard, is discovered. The people in Toyota have made this possible by identifying root causes and develop countermeasures, asking why many times to get to the root cause, and approaching to the problem solving step by step all through responsibility and self-reflection, which were possible through the “room” for learning,.

Organizational slack is essential to adapt to innovation, flexibility, and speed in the rapidly changing environment of today. It will prevent disastrous accidents that come from complex systems of organizations and help an organization develop strategic flexibility. Organizations need to think not to remove important slack, design it into the systems, and take time to be learning organizations. Toyota’s principles and examples show how this is possible displaying its innovative breakthroughs in production technology and vehicle engineering.

An interesting thing is that Toyota does value efficiency as well and is regularly ranked one of the most efficient car makers. Once a decision is made after slow and thorough considerations, Toyota implements it rapidly. Besides, after each innovation, the standardization through learning speeds up the process. This demonstrates the fact that the slack and efficiency can actually go together and achieve great excellence in business operations. What we need to keep in mind here may be not to sacrifice important slack for short-term efficiency, but to utilize slack for long-term efficiency.

References

• Liker, J. (2004). The Toyota Way. McGraw-Hill.
• Senge, P. (1990). The Fifth Discipline: The Art and Practice of Learning Organization. New York: Doubleday.

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