Towards Non-scale Management

People think Taiichi Ohno’s book Toyota Production is about TPS. It’s not. It’s even arguable whether he ever envisioned the Toyota method as a system or set out to build one. There is no native word in Japanese for “system”. He was even reluctant to label what started as the “kanban method” either as his or Toyota’s production method. Whether as method or system, the book describes ways that TPS illustrates his larger point. This larger point is often missed, and while timeless, seems to have more relevance today.

What’s the Toyota Production System About?

Taiichi Ohno’s book Toyota Production System describes many of the core concepts of what we call a Lean management system today. These include jidoka or detection of abnormalities, pursuing the chain of causation to its roots by asking “why?” five or more times, and the value of first-hand observation. It explains just-in-time, with the waste of overproduction as the greatest evil of scaled businesses. It introduces the next process as the customer, and kanban as a signaling method to do or move work based on downstream consumption.

The book inspired, in whole or in part, the adoption Lean practices widely across production to government to healthcare, as well as movements in the Lean Startup and Lean-Agile-Kanban continuum. While inspiring the adoption of these practices, the books is not about these methods or how to apply them.

Subtitle Translations Troubles

The book was subtitled, Beyond Large-Scale Production. This sells short the breadth and depth of Ohno’s main theme. A more literal translation is “aiming for an exit from management of scale” or more simply “towards non-scale management”. This is troublesome in several regards.

First, the word “beyond” suggests a progression, or an answer to the question, “What’s the next stage of advancement after large-scale production?” The original meaning of setting sights on a far destination, an aspiration or an unfinished journey, is lost. Second, there is a big difference in meaning between doing production at scale and managing a business at scale. Although the book is built on the example of Toyota’s production method, Ohno’s message was not one of production management. Which brings up the third point. What is “management of scale”? At face value, it’s the idea that larger businesses gain advantages from their size. Doing more is cheaper, also known as an economy of scale. Economy, or the careful management of resources, is a good thing. So, if scale provides economy, what’s not to like?

False Economies of Scale

A common image to illustrate the evils of overproduction and excess inventory is a small boat on a body of water. Below the water are dangerous rocks that could damage or sink the boat. The high water level keeps the boat from hitting the rocks. But what happens when the water recedes? The rocks are exposed, endangering an unprepared ship.

Scale covers a multitude sin. Fat profits allow us to waste money on sloppy processes and poor customer service. Excess stock hides long or unreliable delivery times. In no case does an economy of scale solve the underlying problem. All it does is delay or muffle the signal that the problem exists. One might argue that lowering transaction costs by spreading them across more units is a form of problem-solving. But the underlying condition still exists, the costs are only shifted or externalized.

The Essential Insight in Taiichi Ohno’s Toyota Production System

When we rely on the benefits of scale such as lower unit costs or winner-take-all effects to make our value proposition viable, we invite risk. We build systems around scale rather than around customer value. The essential insight of Ohno’s book, in my estimation, is this danger of becoming removed from the purpose of our work. Instead of serving people and fulfilling needs of customers, scaled-up firms demand energy to serve the bureaucratic needs of the organization. Rather than working to remove barriers to flowing value to customers, we build barriers to the erosion of our scale economies.

The idea of jidoka is to add intelligence at the process level is to detect and contain errors. The reason for this is to prevent errors from slipping to the next process. This is because the next process is the customer. The kanban method as an artifact of the pull system serves a similar function, but for quantity rather than quality. All of this is done for the purpose of providing the goods and services the customer needs, when needed, in the right amount, otherwise known as just-in-time. Ohno built these capabilities around simplicity, minimal investment and the recognition that the customer valued very little of the scale business we proudly manage.

Why Didn’t Taiichi Ohno Come Right Out and Say These Things?

Taiichi Ohno was neither a writer nor an academic. All of his books were ghost-written by a journalist who interviewed him. He didn’t set out to write the definitive book on TPS. Nor did he aspire to win the Nobel Prize by demonstrating that there is no such thing as an economy of scale. We’re fortunate to have whatever we have of his insights, in any form. It’s up to us to think about what it means today.

Taiichi Ohno’s message was never, “My system is superior. See if you can copy it and do better.” If anything, he was warning us against making the same mistakes Toyota did in pursuing economies of scale. He arrived at the Toyota production method by asking, Who is the customer? What do they want? When do they want it? In what amount? What is the simplest and most reliable way to do this and only this, one need at a time? He didn’t like giving answers because that allowed people to not think for themselves.

Where Do Scale Businesses Go from Here?

The receding of waters, or loss of scale due to COVID-19, has been fast and mighty. The organizations that are well-run, cash-wise, customer-driven and nimble are likely to adapt and thrive. Where do organizations who have been able to operate by covering up their underlying problems, inefficiencies or unsustainable business models due to scale go from here?

Not yet out of the first wave of COVID-19, people are already discussing how to restart, rebuild and reimagine both economy and society. Which aspects should be brought back just as they were, six months ago? To which aspects should we bid farewell? What is inevitable, possible, desirable? There are no easy answers.

Scaling the Challenge in Front of Us

It’s hard to know even how to properly frame such questions. The problem is tricky because it is a) we haven’t contained it, b) its points of cause remain undetected, and c) its scope is global. Any one of these three conditions would be enough to send the A3 problem solver back to step zero to focus on containment activity, grasping the situation or breaking down the problem into a manageable size. Fortunately, most of us aren’t responsible for tackling the worldwide problem, only our local one. The challenge remains the same, but we can scale it down to what we can handle, one customer and one fulfilled promise at a time.

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