A dynamic theory of organizational knowledge creation

An article by Ikujiro Nonaka for the course Managing Operational Processes

The article says that organizational knowledge is created by a continuous dialogue between tacit and

explicit knowledge. The article explains 4 patterns of interaction involving tacit and explicit

knowledge.

The ever increasing importance of knowledge in contemporary society calls for a shift in our thinking

concerning innovation in large business organizations. It raises questions about how organizations

process knowledge and, more importantly, how they create new knowledge. Although ideas are

formed in the minds of individuals, interaction between individuals typically plays a critical role in

developing these ideas.

One dimension on how we can look at knowledge creation is to draw a distinction between the two

types of knowledge, tacit knowledge and explicit knowledge.

Tacit knowledge is hard to transfer; it involves both cognitive and technical elements. The cognitive

elements center on “mental models” in which human beings form working morels of the world by

creating and manipulating analogies in their minds. In contrast to this, the technical element of tacit

knowledge covers concrete know-how, crafts, and skills that apply to specific contexts.

Explicit knowledge refers to knowledge that is transmittable in formal, systematic language. It is

discrete or “digital” and can be captured in records of the past such as libraries and databases.

The epistemological dimension adopts a definition of knowledge as “justified true belief”.

The ontological dimension is the level of social interaction. At a fundamental level, knowledge is

created by individuals. An organization cannot create knowledge without individuals. Organizational

knowledge creation, therefore, should be understood in terms of a process that “organizationally”

amplifies the knowledge created by individuals.

There are 3 basic factors that induce individual commitment in an organization setting: Intention,

autonomy and fluctuation.

Intention is concerned with how individuals form their approach to the world and try to make sense

of their environment. It is not simply a state of mind, but rather what might be called an action-

oriented concept. Without intention, it would be impossible to judge the value of the information or

knowledge perceived or created.

Autonomy: The principle of autonomy can be applied at the individual, group and organizational

levels – either separately or all together. By allowing individuals to act autonomously, the

organization may increase the possibility of introducing unexpected opportunities. An organization

that allows this gets a higher flexibility in acquiring, relating and interpreting information. Individual

autonomy also widens the possibility that individuals will motivate themselves to form a new

knowledge.

Fluctuation: Even though intention is internal to the individual, knowledge creation at the individual

level involves continuous interaction with the external world. In this connection, chaos or

discontinuity can generate new patterns of interactions between individuals and their environment.

When a change occurs, people are often triggered to reconsider their fundamental thinking and

perspectives.

It is now possible to bring together the epistemological and ontological dimensions of knowledge

creation to form a “spiral” for the model for the process involved. This involves identifying four

different patterns of interaction between tacit and explicit knowledge. These patterns represent

ways in which existing knowledge can be converted into new knowledge.

The assumption that knowledge is created through conversation between tacit and explicit

knowledge allows us to postulate four different “modes” on knowledge conversion:

1. From tacit knowledge to tacit knowledge

2. From explicit knowledge to explicit knowledge

3. From tacit knowledge to explicit knowledge

4. From explicit knowledge to tacit knowledge

When it comes to #1 it is important to

know that this can be done without

talking. The key to acquiring tacit

knowledge is experience and a common

example of this are apprentices who

work with mentors to learn their work.

This process is called socialization.

For #2 the most common way to

exchange knowledge are through

mechanisms like meetings, telephone conversations etc. It involves the use of social processes to

combine different bodies of explicit knowledge held by individuals. This process is called

combination.

The 3rd and 4th models of knowledge creation relate to patterns of conversation involving both tacit

and explicit knowledge. These conversation modes capture the idea that explicit and tacit knowledge

are complementary and can expand over time through a process of mutual interaction. These are

called internalization and externalization. Metaphors are important parts of the externalization

process and action to the internalization process.

Spiral of knowledge: While each of the four models of knowledge conversion can create new

knowledge independently, the central theme of the model of organizational knowledge creation

proposed here hinges on a dynamic interaction between the different modes of knowledge

conversion. That is to say, knowledge creation centers on the building of both tacit and explicit

knowledge and, more importantly, in the interchange between these two aspects of knowledge

through internalization and externalization. Organization knowledge creation, as distinct from

individual knowledge creation, takes place when all four modes of knowledge creation are

“organizationally” managed to form a continuous cycle.

First, the socialization mode usually starts with the building of a “team” or “field” of interaction. Second, the externalization mode is triggered by successive rounds of meaningful “dialogue”. In this

dialogue, the sophisticated use of “metaphors” can be used to enable team members to articulate their own perspectives, and thereby reveal hidden tacit knowledge that is otherwise hard to

communicate. Thus, organizational knowledge creation can be viewed as an upward spiral process, starting at the individual level moving up to the collective (group) level, and then to organizational level, sometimes reaching out to the interorganizational level. The quality of that tacit knowledge is influenced by two important factors. One factor is the "variety" of an individual's experience. If this experience is limited to routine operations, the amount of tacit knowledge obtained from monotonous and repetitive tasks will tend to decrease over time. A second factor that determines the quality of tacit knowledge is "knowledge of experience." Måste slänga in att detta är den tråkigaste artikel jag någonsin läst; fy fan! One can say that there are 3 types of management model. Top down, middle up-down and bottom up. In earlier work, a new model of management called "middle-up-down management" was proposed and contrasted with typical "top-down" management or "bottom-up" management. This middle-up-down management model is suitable for promoting the efficient creation of knowledge in business organizations. The model is based on the principle of creative chaos, redundancy, and requisite variety mentioned above; much emphasis is placed on the role of top and middle management for knowledge creation, which has been almost neglected in traditional accounts of managerial structure. The essence of a traditional bureaucratic machine is top-down information processing using division of labor and hierarchy. Top managers create basic managerial concepts (the premises of decision making) and break them down hierarchically—in terms of objectives and means—so that they can be

implemented by subordinates. Top managers' concepts become operational conditions for middle managers who then decide how to realize the concepts. On the contrary, in the bottom-up model, those who create information are not top managers, but middle and lower managers. In a typical bottom-up managed company, intracompany entrepreneurs or "intrapreneurs" are fostered and developed by the system. In reality there are not many larger firms that have bottom-up management style. Se picture and find differences yourself.

Finally, an image can be presented of organizational design that provides a structural base for the process of organizational knowledge creation. Middle-up-down management becomes most efficient if supported by this infrastructure. The central requirement for the design of the knowledge-creating organization is to provide the organization with a strategic ability to acquire, create, exploit, and accumulate new knowledge continuously and repeatedly in a circular process. Earlier work has described an image of organizational design equipped with such a dynamic cycle of knowledge under the concept of a "hypertext organization”. It links related concepts and areas of knowledge to allow a problem to be viewed from many angles. The core feature of the hypertext organization is the ability to switch between the various "contexts" of knowledge creation to accommodate changing requirements from situations both inside and outside the organization. The hypertext organization combines the efficiency and stability of a hierarchical bureaucratic organization with the dynamism of the fiat, cross-functional task-force organization.

Business Process Outsourcing (BPO): Emerging Scenario and

Strategic Options for IT-enabled Services Article in the course Managing Operations Processes by K Ramachandran and Sudhir Voleti

The paradigm shift that the Internet has brought about in communication has opened up a plethora of opportunities for outsourcing business processes (BPO) across continents. Outsourcing involves transferring certain value contributing activities or processes to another firm to save costs and for the principal to focus on its areas of key competence. IT-enabled services (ITES) includes services that can be outsourced using the powers of IT; the extent to which this is possible depends on the industry, location, time, costs, and managerial perception of the risks involved. The Internet has facilitated execution of several activities, previously done within geographical proximity to the firm, from remote low-labor cost locations, drawing both transaction cost and production cost efficiencies. In all these value configurations, the objective is to offer greater value to customers at lower costs. The basic challenge is in assuring fulfillment of quality parameters, particularly when both production and consumption take place simultaneously as in a service business. It is all the more high when the parent firm is located geographically away from the sub-contracting service provider and the consumer is in yet another totally different geo-cultural context, effectively denying possibilities of exercising any close physical control or coordination. However, the logic of outsourcing is so powerful that the trend of outsourcing is likely to continue to grow in future. Since organization of economic activities is based on the principles of transaction costs and production costs, it is unlikely that the trend will be reversed. Transaction Cost Efficiency: A ‘transaction’ here represents the transfer of a good or service across a technologically separable interface. The boundary between firms is an example of just such an interface. The definition may also extend to different sub-organizational boundaries delineated by geography, product specialization, or ownership. Production Cost Efficiency: The concept of production cost efficiency posits that production by a team is the distinguishing characteristic of the firm (Alchian and Demsetz, 1972) and the team continues in existence only as long as the team output is sufficiently greater than the sum of the output under independent production to justify the costs of organizing and monitoring team members. From the large body of extant literature on the imperative to outsource the following reasons come out very clearly as determinants of outsourcing:

cost reduction

core competence focus

flexibility while retaining control

competitive advantage through strategic outsourcing.

In essence, the logic of outsourcing of services is based on sound economic principles. The rapid growth in ITES (IT-enabled services) has often given an impression that it is quite independent of BPO which is not true. As the term suggests, ITES includes services that can be outsourced using the powers of IT. The extent to which IT can be leveraged varies under the influence of suitability to industry, location, time, costs, and managerial perception of the risks

involved. The boom in ITES is primarily in customer care, followed by administration and banking, all at the lower end of an intellectual pyramid, but involving large number of people. Future of BPO - The above discussion on the evolution of sub-contracting in Japan and elsewhere, with strengthening of decentralized production and consumption, thanks to new breakthroughs in technologies, underlines the inevitability of outsourcing in all industries. A major benefit of the growing power of IT is its capacity to aggregate and integrate solutions emerging from a number of players in the ecosystem. It is true that without the Internet, service outsourcing would have been impossible where delivery had to be either assembled or coordinated. Yet another reality is the growing level of competition in any sphere. This means that firms have to be innovative not only to address changing customer needs but also to keep the costs down. In other words, what we are witnessing in the form of some resistance, particularly in the US, is the outcome of a shock. It will disappear under three possible situations. One, firms realizing the need to do so for maintaining competitiveness putting counter pressure on the US administration, two, the federal and state governments in the US playing a losing game for a while but realizing the futility of it, as it happened with the import of Japanese products in the 1970s and ‘80s and is now happening with the Chinese. Third, the US economy bouncing back and unemployment rates falling giving clear indications of a revival and fading of the threat perception prevailing now. The figure shows how most businesses think when it comes to BPO, and how they should think. One way an organization could work to outsource parts closer to their core is to set up their own operation in a low-cost country. Some of the factors that come in the way of parents setting up their own operations in India that have significant implications for the growth trajectory of Indian BPOs are:

Direct cost of operations and scale economies

Long-term assessment of India as a low cost centre

Cost-benefit assessment of own vs. rented

Brand implications of perceived drop in quality

Robustness of existing systems and processes. If starting their own operation isn’t an option another possible solution is to start a joint-venture. Outsourcing also represents certain risks to the parent firm. Many BPO managers are concerned about a possible loss of control over their transactions and confidentiality and security of the data if an outsider handles them. Two key capabilities required for success in ITES space are: capabilities to understand customer needs in the specific domains and acquiring business (BD capabilities) and capabilities to execute them efficiently (Ops capabilities). ITES firms are likely to bifurcate their firm into two parts based on these two critical success factors. On the operations front, BPO service providers offer scale economies by spreading the fixed cost of setting up and maintaining facilities and infrastructure over several clients. This is true with captive BPO units also where different geographical units of the same firm make economic sense when each one of them fulfills efficient size considerations. This kind of

scale economies is primarily a reflection of the firm’s Operations Capabilities (Ops). Further, learning curve effects realize scale economies to management when one set of similar activities is outsourced to one service provider. We note that, in this case, the scale economies to management are realized by outsourcing to firms which have the required level of domain expertise to understand the outsourcer’s requirements fully. Success on this count is a reflection of the overall Business Development Capabilities (BD) of the firm. A BPO company can be categorized in 4 different ways, Q1- Q4 depending on their capabilities in BD and OPS. Most new small players are likely to enter either Quadrant 1 (Q1) or Quadrant 2 (Q2). Their survival chances are negligible in Q1 since this is the position serviced by pure Ops players in Quadrant 4 (Q4) with high Ops and low BD capabilities. These players are likely to try to move towards the High BD-High Ops space in Quadrant 3 (Q3) by developing some vertical expertise and expanding to minimum efficient size of operations. Firms which are unable to achieve either minimum viable size or development of strong BD capability will get caught in an oversupply-low margin-commodity situation and we postulate that most will perish. In conclusion; organizational competitiveness is determined by its ability to meet changing customer needs better than others. In a society changing rapidly under the influence of a number of socio-techno-economic factors, it is almost impossible for any one organization to build competitiveness on all the value links. We were used to a less than perfect situation. However, new paradigms created by the Internet and several physical infrastructural components have opened up new possibilities for redefining value networks. There is every indication that distances are shrinking across the globe, both in virtual and physical terms, if we look at it from the angle of time, which is the scarcest resource.

How to kill creativity Harvard business review written by Theresa Amabile

According to Amabile creativity gets killed more often than it gets supported. In every day work

creativity gets undermined by the company’s bigger goals like productivity, control, coordination etc.

In order to be creative, an idea must also be appropriate, useful and actionable. Creativity is good in

all parts of the company, even in accounting where most managers think it doesn’t belong.

Amabile says that 3 components are necessary in order to be creative. These parts are:

Expertise

A person’s knowledge in the field in which the innovation is needed is very important for the

person’s ability to be creative. An innovation in the field of medicine can for example not be made by

a person who doesn’t have a great amount of knowledge in the area.

Motivation

A person will not be creative unless he has the motivation for it. The person about to be creative in

the medicine field may be the world’s best in the field but unless he has the desire to create

something he will never be creative.

Creative thinking skills

And of course the person needs to know how to approach the problems and solutions; this depends

both on the person and on the techniques the person uses. The skill also depends on the persons

personality and as well on how he works and thinks.

According to Amabile there are two different types of motivation:

o Extrinsic

This is often the root of creativity problems in companies. Extrinsic motivation comes from outside a

person – whether the motivation is a carrot or a stick. It can come in the form of a reward, the most

common form, or the threat of losing your job etc. This type of motivation “makes” the person do

their job.

o Intrinsic

This is the kind of motivation that is about a person’s passion and internal desire to do something.

Amabile says that this is the most important type of motivation. She says that people will be most

creative when they fell motivated primarily by the interest, satisfaction and challenge of the work

itself – and not by external pressure.

A manager has different practices that can affect creativity. These fall into 6 categories:

Challenge

Freedom

Resources

Work-group features

Supervisory encouragement

Organizational support

These categories are a result of several years of research on especially one question: what are the

links between work environment and creativity. It’s based on interviews, experiments and surveys.

Challenge is probably the most efficient way for a manager to stimulate creativity. Managers can

match people with jobs in which their expertise and skills in creative thinking are best used and at

the same time ignite intrinsic behavior.

Freedom is another key to creativity and is achieved by giving people autonomy concerning process,

but not the ends. When given freedom, people will be more creative. The goal is still set by managers

but the staff should have a chance on influencing which route they want to take.

Resources affect creativity in two ways, time and money. Managers need to allocate these carefully,

just like matching people with the right assignments is important for the manager to make sure

which resources they should get, the decision here could either support or improve creativity.

Work-Group features i.e. the design of the teams is another important factor for creativity. You want

to create a mutually supportive group with a diversity of perspectives and backgrounds. Although

people are different they still need the motivation, knowledge and creative thinking skills as

mentioned earlier.

Supervisory Encouragement. In order for a group or a person it’s very important for them to feel

they are supported and encouraged by their managers. This has also to do with the intrinsic

motivation, which is easily supported by an encouraging manager. The manager also needs to show

that he accept creativity and that he can reward it when successful.

Organizational support. Encouragement from management is as mentioned an important part of

creativity. However this is not enough, the employees need to know that the entire organization is

behind them. Top management needs to emphasize the value of creativity.

A crucial stage in the formulation of operations strategy is the derivation of a ranked list of

competitive factors such as quality, flexibility, cost etc. These things are used to infer an appropriate

set of strategic operations decisions or alternatively it is used in conjunction with an independently

derived list of the organizations performance to prioritize the company’s competitive factors.

“Martilla and James” show how the importance performance matrix can be derived to describe how

the importance performance matrix can be modified to reflect managers perceived relationships

between “importance”, “performance”, and “priority” for improvement.

One of the more significant activities in the operations strategy formulation process is the derivation

of a list of competitive factors, also called critical success factors, performance objectives or

competitive variables which are prioritized in terms of relative importance to each other. Normally

such a list ranks those factors which the operations function contributes to the competitiveness of

the organization. For example, quality may be regarded as more important than product or service

range, but less than price and so on..

The importance-Performance Gap

Martilla and James suggest that each attribute of a service could be judged by its “customer importance” and “company performance”. Importance is rated on a four point scale. (Extremely important, important, less important and not important). Performance is rated in the same way.

The utility of this model lies in its ability to bring together both customer importance factors with

company performance factors. This model helps managers decide what areas to focus on. If there is

some activity that is not that important for the customers but which the company spends a lot of

effort on then maybe it’s overkill and they should cut down the resources for this. And vice versa if

the activity is really important for the customers and they don’t perform very well in the area. That is

then the critical area where they should focus more.

The overall purpose of methods, models and procedures in the process activities of operations

strategy is to aid managers in their practical task of formulating their own operations development

strategies.

The article now goes into some example cases where different managers try out the different models,

a lot of steps and details but it doesn’t contribute to the knowledge about the models, so I will leave

that out. Pages 63-66 and 70-72 for the interested reader.

Importance Performance Matrix Zoning

An alternate way of identifying where to focus is the zoning importance-performance matrix. It

follows the same pattern as the first model but is a little more dynamic. It has performance

(company) as Y and importance (customer) as X and you divide the companies activities into the

model according to X and Y. The different areas in the model are described below.

The appropriate Zone

This zone is bounded on its lower edge by the “minimum performance boundary”, that is the level of performance which the company, in the medium term, would not wish the operation to fall below. Moving performance up to, or above, this boundary is likely to be the first-stage objective for any improvement programme. Competitive factors which fall in this area should be considered satisfactory, at least in the short-to-medium term. In the long term, however, most companies will wish to edge performance towards the upper boundary of the zone.

The “Improve” Zone Any competitive factor which lies below the lower bound of the “appropriate” zone will be a candidate for improvement. Those lying either just below the bound or in the bottom left-hand corner of the matrix (where performance is poor but it matters less) are likely to be viewed as non-urgent cases. Certainly they need improving, but probably not as a first priority. The “Urgent Action” Zone More critical will be any competitive factor which lies in the “urgent action” zone. These are aspects of operations performance where achievement is so far below what it ought to be, given its importance to the customer, that business is probably being lost directly as a result. The short-term objective must therefore be to raise the performance of any competitive factors lying in this zone at least

up to the “improve” zone. In the medium term they would need to be improved to beyond the lower bound of the “appropriate” zone.

The “Excess?” Zone The question mark is important. If any competitive factors lie in this area their achieved performance is far better than would seem to be warranted. This does not necessarily mean that too many resources are being used to achieve such a level, but it may do. It is only sensible therefore to check if any resources which have been used to achieve such a performance could be diverted to a more needy factor – anything which falls in the “urgent action” area, for example.

Conclusion

Importance performance matrixes are extremely valuable tools for helping in determining the

priorities both for improvement in external and internal services. They help the managers get an

overall view on where to focus their resources. An example of how a matrix with activities could be

constructed is shown below. As shown perhaps we are a little “too good” in doing the

documentation and we should instead focus more on our response reliability and our consultancy

skills.

Summary of Organizational Theory Organizational capability for knowledge creation is gaining attention as a potential source of

competitive advantage for firms operating in today’s global marketplace. Several large companies

such as Nissan, NEC, Honda HP Motorola and so on are using their knowledge creation skills in a

variety of areas, such as developing and introducing new products, shortening design manufacturing,

reduce cycle times as well as both collaborating and competing with old foes and overcoming

barriers to enter new markets. Thus said, knowledge can be used in many different ways and areas.

Any organization that dynamically deals with a changing environment should not only process

information efficiently, but also create information and knowledge. Analyzing an organization in

terms of its design and capability to process information is one approach on how to interpret certain

organizational activities. The purpose of this article is to reveal how the process of knowledge

creation can me managed to help organizations achieve and sustain competitive advantage.

Dimensions of knowledge creation

Although a great deal has been written about the importance of knowledge in management, little is

known about how knowledge is created and how the creation of knowledge can be managed. One

dimension of this knowledge creation process can be drawn from a distinction between two types of

knowledge identified by Polanyi (1966), tacit and explicit. Knowledge that can be expressed in words

and numbers only represents the tip of the iceberg of the entire body of possible knowledge.

According to Polanyi explicit knowledge refers to knowledge that can transferred in formal,

systematic language, whereas tacit knowledge has a personalized quality which makes it hard to

formalize and communicate that knowledge.

Four Modes of Knowledge Conversion

Based in part of his qualitative case studies of the knowledge creation process in a sample of

Japanese companies, Nonaka (1994) identified four different patterns of interaction between tacit

and explicit knowledge. These patterns represents ways in which existing knowledge can be

“converted” into new knowledge. The idea of “knowledge conversion” evolves from Anderson’s ACT

model (Anderson, 1983) developed in cognitive psychology. In the ACT model, knowledge is divided

into “declarative knowledge” (actual knowledge) that is expressed in the form of proposition and

“procedural knowledge” (methodological knowledge) which is used in such activities as

remembering how to ride the bicycle or play the piano. In the context of current discussion, the

former might approximate to explicit knowledge and the latter to tacit knowledge. Anderson’s

model hypothesizes hat declarative knowledge has to be transformed into procedural knowledge in

order for cognitive skills to develop. The assumption that knowledge is created through conversion

between tacit and explicit knowledge allows us to formulate four different “modes” of knowledge

conversion. 1) tacit knowledge to tacit knowledge. 2) explicit knowledge to explicit knowledge.

3) tacit knowledge to explicit knowledge, 4) explicit knowledge to tacit knowledge.

First there is a mode of knowledge conversion that enables us to convert tacit knowledge through

interaction between individuals. One important thing is that this can be done without any expressed

language, it could be learned through just watching and imitating. This process of learning tacit

knowledge is often referred to as socializing.

The second mode of knowledge conversion involves the use of social processes to combine different

bodies of explicit knowledge held by individuals. Individuals exchange and combine knowledge

through such exchange mechanisms as meetings and telephone conversations. Modern IT systems

are a typical example of this.

The third and fourth modes of knowledge conversion relate to patterns of conversion involving both

tacit and explicit knowledge. These conversion modes capture the idea that tacit and explicit

knowledge are complementary and can expand over time through a process of mutual interaction. If

the transfer is from tacit into explicit knowledge it’s called “externalization”. And if it’s the other way

around it’s called “internalization”.

Model Shift and Spiral of Knowledge

While each of the four modes of knowledge conversion can create new knowledge independently,

the central theme of the model of organizational knowledge creation proposed here focuses on a

dynamic between the different modes of knowledge conversion. That is to say, knowledge creation

centers on the building of both explicit and tacit knowledge and more importantly, on the

interchange between them, referred to as externalization and internalization. Organizational

knowledge creation, as distinct from individual knowledge creation takes place when all four modes

of knowledge creation are “organizationally” managed to form a continual cycle. This cycle is shaped

by a series of shifts between different modes of knowledge conversion. There are various “triggers”

that induce the different shifts. For example, the socializing mode usually starts with the building of a

“team” or “field” of interaction. The externalization mode is triggered by successive rounds of

meaningful dialogues and so on..

Discussion

Recent developments in organizational theory suggest that organizational performance in terms of

innovation, product development and competitive advantage is highly determined by the creation of

knowledge at individual, group and organizational levels. Surveys have been done among various

companies and they all show a pattern that the knowledge creation truly exists in all four modes

discussed earlier. Further studies should be aimed even deeper into these areas to see how they can

influence each other and the whole learning of the organization.

Triumph of the Lean Production System Here is just a short summary plus some “explaining” figures.

Implications – summary

Product management policy has a tremendous effect on plant operation performance. Several North American plants, may managed with a lean production policy, achieve performance levels equal to or better that some Japanese plants.

Lean plants are more capable of simultaneously achieving high levels of productivity, quality, and mix complexity.

Intraregional variation in operation performance is significant in Japan, North America, and Europe. Substantial overlap among these regions and relatively consistent international intracorporation performance support the notion that corporate parentage and culture are at least as important as location in determining assembly plant performance.

The level of plant technology seems to have little effect on operation performance. Robotic applications are not being used to accommodate mix complexity in most of the plants in this survey.

These conclusions suggest several implications for managers. One of the most important is that,

based on the experience of the high-performance multinational corporations in this study, effective

production management policies can be shaped regardless of plant location. Further lean

management policy is most conductive to improve productivity and quality performance. There is a

move in U.S. toward this model, and at least one U.S. multinational company has already profited

from this strategy.

It is clear, too, that lean management policies have inherent risk that must be managed with a great

deal of discipline and skill. From the experience of Japanese and Western producers, it appears that

this risk can be largely neutralized by developing a well-defined, flexible workforce, product design,

and supportive, high-performance supplier network. Those Western producers with access to these

resources (or that have already begun to put these resources in order) will find lean system

implementation comparatively painless; those without such resources will have a much tougher

time. Some managers may be heartened to know that expensive flexible automation is not a

requirement to high performance – it can come later (if at all), after the appropriate organizational

groundwork has been completed.

Table 1. Production System Characteristics. TPS stands for Toyota Production System

Figure 1. A Categorization of Produc

tion System

Figure 4. Management index Values be Parent/ Plant location

Decoding the DNA of the Toyota Production system This article tries to explain how the Toyota Production System works.

It is very few manufacturing companies who have manage to imitate Toyota successfully, even

though the company has been extraordinarily open about its practices.

“So why has it been so difficult to decode the Toyota Production System? The answer is that

observes confuse the tools and practices they see on their plant visits with the system itself. That

makes it impossible for them to resolve an apparent paradox of the system, namely, that activities,

connections, and production flows in a Toyota factory are rigidly scripted, yet at the same time

Toyota’s operations are enormously flexible and adaptive. Activities and processes are constantly

being challenge and pushed to a higher level of performance, enabling the company to continually

innovate and improve.” To under stand the success you have to see that the strict specification is the

very thing that makes the flexibility and creativity possible.

To make any change Toyota uses a problem-solving process that requires a detailed assessment of

the current state of affairs and a plan for improvement that is an experimental test for the proposed

changes. The Toyota system actually stimulates workers and managers to engage in the kind of

experimentation that is recognize in learning organizations.

Four rules

The article describes four principals -3 rules of design and 1 rule of improvement - to explain how the

Toyota system works. These rules guide the design, operation and improvement of every activity,

connected, and pathway for every product and service.

Rule 1 How people work. All workers shall be highly specified as to content, sequence, timing, and outcome. People should “Learn the rules”, this process gives the person increasingly deeper insight into his own specific work. Managers don’t tell workers specifically how to o their work. Rather they use a teaching and learning approach that allows their workers to discover the rules as a consequence of solving problems. Instead of direction supervisors may ask: -How do you do this work task? - How do you know you are doing this correctly? –How do you know that the outcome is free from defects? – What do you do if you have a problem? All the rules are taught in similar way.

Rule 2 How people connect. Every connection must be standardize and directed, unambiguous specifying the people involved, the form and quantity of the goods and service to be provided, the way request are made by each customer, and the expected time in which the request will be met. The rule creates a supplyer-customer relationship between each person and the individual who is responsible for providing that person with each specific good or service. As a result, there are no gray zones in deciding who provides what to whom and when.

Rule 3 How the production line is constructed. All production lines at Toyota have to be set up so that every product and service flows along a simple specified path. That path should not change unless the production line is expressly redesigned. In principle, then, there are no forks or loops to convolute the flow in any of Toyota’s supply chains. (specific paths for e.g. spare parts: “assembly worker”-supplier-manufacturer)

Rule 4 How to improve. Rule 4 stipulates that any improvement to production activities, to connections between workers or machines, or to pathways must be made in accordance with the scientific methods, under the guidance of a teacher, and at the lowest possible organizational level. The article describes “how people can learn to improve”, for instance with help from “teachers”. Further the article describes, “who does the improvements”- front-line workers make the improvements to their own jobs, and their supervisors provide direction and assistance as teachers. Toyota tries to improve at all levels of the organization.

All the rules require that activities, connections, and flow paths have build-in tests to signal problems

automatically. It is the continual response to problem that makes this seemingly rigid system so

flexible and adaptable to changing circumstances.

Toyotas notion of the ideal

Beyond these rules the Toyota Production System share a common goal. They have a common sense

of what the ideal production system would be, and that share vision motivates them to make

improvements beyond what would be neccessarymerly to meet the current need of their customers.

Very specifically, for Toyotas workers, the output of an ideal person, group of people, or machine:

Is defect free

Can be delivered one request at a time

Can be supplied on demand in the version requested

Can be delivered immediately

Can be produced without wasting any materials, labour, energy, or other resources

Can be produced in a work environment that is safe physically, emotional, and professionally for every employee.

The organizational impact of the rules

How does Toyota improve and remain stable at the same time?

By making people capable of and responsible for doing and improving theire own work, by

standardizing connections between individual customers and suppliers, and by pushing the

resolution of connection and flow problems to the lowest possible level, the result create an

organization with a nested modular structure, rather like traditional “Russian dolls” that come one

inside the other.