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 Toyota’s Innovation Process:

What We Can Learn from the Prius

By Shlomo  Maital  

            Prius

Prius 2014

  How did Toyota develop and build the Prius  in record time?  How has Toyota developed and sold 40 million Corollas? (We have one, it has over 300,000 kms. or 180,000 miles and is going strong). 

   I learned a lot from an advertisement, perhaps the first time an ad in TIME was more interesting than the editorial copy.  The ad was an article by Mitsuhisa Kato, Toyota’s VP for R&D.  Here is a summary of what he said:

   * Get your R&D people out into the world and out of their darn labs:   “Seeing people drive so fast on rough roads where I would have slowed to a crawl [front-wheel drive Corollas in nations with unpaved roads] was eye-opening.  It highlighted for me the importance of venturing out into the marketplace to see things firsthand.”

  * Organize around technologies, not features:  “We launched the first-generation Prius in 1997. That was only two years after we formally initiated the development process! (Project head) Takeshi Uchiyamada (now Chair of Toyota) got inspiration from NASA’s Apollo program.  Its managers identified the technologies they needed, and assigned a development team to each technology, enduring each team met its target and deadline. We adopted a similar tack. 

Get your engineers to talk across disciplines:  “We moved the mechanical engineers and the electrical engineers onto the same office floor.  Their face-to-face interchange raised our technical discourse to a new dimension and brought important progress.”

Innovation is not rigidly bound by tradition but driven by it: “A renowned Japanese potter quote Auguste Rodin to me —  Tradition is not inheriting the skeletons of the past, it is inheriting the SPIRIT of the past.  We at Toyota honor the spirit of the joy of mobility. 

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Is America Truly a Land of Opportunity? 

By Shlomo  Maital   

       Alger

   Horatio Alger, Jr.  was a  19th-century American author who wrote many juvenile novels about boys who rose from poverty and humble backgrounds to middle-class security and comfort through hard work, determination, courage, and honesty.  He helped create the mythology of America as a land of unlimited rags-to-riches opportunity for everyone – a myth that was once partly true, but no longer is.  Today, Horatio Alger is science fiction. How do I know?

   As witness for the prosecution, I call on President Obama.  He claims he will make upward mobility, and lower inequality, “the defining challenge of our time”, as his main goal for the remainder of his presidency.  Here are some facts he cited, in an important speech:

* An American child born into the lowest 20 per cent income level has less than a 1-in-20 chance of making it to the top – while a child born into the top 20 per cent has a 2-in-3 chance of staying there.  So much for Horatio Alger.

* The top 10 per cent of income earners gets half of all national income, up from only a third in 1979, and matching the inequality in Jamaica and Argentina.

   Obama’s speech even won praise from New York Times columnist Paul Krugman, who loved Obama’s statement that fiscal deficits are a lesser threat compared with a “relentlessly growing deficit of opportunity”. 

    Nice speech, Obama.  But once again, you spin words without deeds. Because you forgot to mention the one thing that could truly revive the middle class – in-sourcing,  bringing home all the well-paying middle-class manufacturing jobs that America blithely sent abroad in outsourcing.   Only 9 per cent of America’s workforce is employed in manufacturing. Less than 12 per cent of GDP originates in manufacturing.  Not that long ago, it was fully 21 per cent (in 1980).   The U.S. share of world manufacturing production has declined from 31 percent in 1980 to 24 percent in 2008. 

    By outsourcing manufacturing jobs, America has given up two pillars of the middle class — $20/hr. wages (more than double what Wal-Mart pays),  and the productivity gains that accompany manufacturing technology, now being reaped mainly by China.  No country can truly prosper unless it makes things. 

    A few key changes in America’s tax laws could be a good start.  But forget that – Republicans will never support anything that damages the privileges of the wealthy.  What is hard to understand is why so many of the lowest 20% of the income distribution vote for them.

Nicholas Negroponte: Where Do Ideas Come From?

By Shlomo  Maital    

Negroponte

                            

MIT Media Lab

   MIT Prof. Nicholas Negroponte was the featured speaker at the 20th anniversary event of the MIT Enterprise Forum of Israel, an organization I helped found in 1994,  and now run by Ayla Matalon.  Negroponte spoke about how and why he started the Media Lab, together with MIT President Jerome Wiesner.  His plan was to create a place for outsiders, for those whose radical innovative ideas would never be accepted in conventional MIT faculties.   For 30 years the Media Lab has been a fountain of radically new ideas built on strong research foundations, with corporations lining up to pay fortunes just to gain access to those ideas.  

     “Where do new ideas come from?”  Negroponte asked the audience, rhetorically.   In one word:  “From differences.”  From people who think differently. 

     I think this explains why so few really new ideas emerge from universities, places where creativity is supposed to live but never does,  and from big corporations, which pay lip service to innovation but do everything to stamp it out.

     Universities reproduce ideas, by having students do research that in tiny incremental steps extends the research of their advisors, and generally affirms it.  Imagine a thesis that disproved the central theories of the advisor!   Tenure is gained fastest and easiest by publishing mainstream research that irritates no-one and ruffles the fewest feathers.   

    Businesses grow to global scale by operational discipline, in which people are well paid to do the same thing, again and again, with excellence and discipline.  Imagine a manager who tells his CEO that the company’s most profitable product line is becoming commoditized and should be sold or closed. 

    Neither universities nor large multinationals want their people to think differently. Nor do they hire people who are different.   This, despite the well-known finding that it is the most diverse teams that are the most innovative, and the rule that you should include a non-expert in every team, to ask the ‘dumb’ questions.

    I strongly urge my students to respond to job interviews with their own interviews. Interview the interviewer.  Find out if they really do want your creative ideas.  Find out if they celebrate failure, and welcome diversity.  Do this BEFORE you get put into the corporate blender and emerge as bland conventional porridge, instead of remaining a spicy jalapena pepper. 

Nelson Mandela:  The Power of Forgiveness

By Shlomo  Maital  

      Mandela

Mandela’s Robben Island prison cell

  If you yourself had been incarcerated for 27 years in the tiny cell shown above, and then released,  how willing and eager would you be to forgive your captors? 

   Nelson Mandela forgave.  Elected President of South Africa, his personal stature and charisma led fellow black South Africans to studiously avoid a campaign of vengeance and violence, that seemed almost inevitable, against the white community that had imposed apartheid on them.  And his campaign began with his own personal forgiveness. 

     Mandela kept South Africa from descending into rage and violence and allowed its citizens to build and rebuild. 

     We can all learn a simple powerful lesson.   Amnesia is a necessary condition for peacemaking.  France and Germany harbored bitter memories and in three terrible wars,  Franco-Prussian, WWI and WWII, sought vengeance.   Only by joining in the European Union and burying the hatchet, have such wars been ended.   China has bitter memories of Japan’s brutal occupation in WWII.  Those memories may keep Asia from building its own economic union and are leading Japan and China into a confrontation neither wants nor can afford.  Israelis and Palestinians each harbor deep grudges, going back 100 years.  But as an expert recently noted, the long memories in the Mideast are a huge obstacle to making peace.  We need to forget, to forgive and move on.  History is simply a sunk cost. And sunk costs are irrelevant in making rational decisions.

     We could all learn much from Mandela.  I hope all those who praise him, and eulogize him, pay close attention to what he taught us – forgive and forget.  There is no other way to live in peace.      

US GDP Growth: The REAL Story

By Shlomo  Maital   

             inventory             

Inventory of unsold automobiles

   New estimates for U.S. economic growth in the 3rd quarter of 2013 have just been published by the Bureau of Economic Statistics, Dept. of Commerce.  They reveal two key facts.

   * First, never ever just read the headline and lead paragraph, which is what most of us do.  The lead is:  the annualized GDP growth rate in Q3 2013 was a torrid 3.6 per cent!  This is an adjustment of the initial estimate, which was only 2.8 per cent, and a big jump from Q2 2013,  2.5 per cent.

   But if you dig down to around the 12th paragraph of the BEA release, you find this:   “The change in real private inventories added 1.68 percentage points to the third-quarter change in real GDP, after adding 0.41 percentage point to the second-quarter change.  Private businesses increased inventories $116.5 billion in the third quarter, following increases of $56.6 billion in the second quarter and $42.2 billion in the first.”

    What does this mean?  It means that  the increase in GDP, the stuff PRODUCED in Q3, was far bigger than the increase in final sales, the stuff people actually BOUGHT in Q3.  Final sales rose by only 2.1 per cent.  This is because businesses were overly optimistic about the ‘recovery’, produced too many cars, refrigerators, TV’s and cell phones, and ended up dumping them into the warehouse instead of selling them.  This has happened now for three straight quarters.

     This is bad news. It means that in Q4 and next year, 2014, businesses will cut production to sell off their inventories. That will reduce GDP growth, reduce job growth and weaken the recovery.  Always ALWAYS check the inventory numbers, not just the GDP numbers.

    * Second,  short term business cycles are alive and well. And they are always caused by human emotion.  We become overly optimistic, produce too much, fail to sell it, then have to cut back because inventories are expensive and stored goods soon become unsellable.  So the boom-bust cycle is permanently with us, because economies are driven by human beings and human beings jump from excessive hope to excessive despair and back again. 

     Prof. Robert Lucas’ statement in 1995 that the business cycle had been forever smoothed was simply, like Mark Twain’s description of his death,  “premature”.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
December 2013
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