Paris Is All Wrong

Joseph Paris, that is. Not the city of lights.

Recently, Joseph Paris of XONITEK and the Operational Excellence Society argued that the continuous improvement community is making a grievous mistake by worshipping at the altar of Toyota and all things Japanese. He writes:

I believe this reverence of Japan and Japanese companies is largely (perhaps entirely) undeserved—possibly even a myth.  As they say, sacred cows make the best hamburger. And even if all this hype about Japan and Japanese companies was ever true at some point in the past, it is certainly not true today—and has not been true since the early 1990’s.  Further, I would propose that the expected results of any company that has “drank the Kool-Aid” and is trying to emulate the way a Japanese company operates as a path to a better future are misguided at best, and more than likely greatly exaggerated—leading to a disappointment that is almost certainly inevitable.

Paris goes on to compare per capita GDP in Japan, Germany, and the US; the movement of the Nikkei, DAX, and Dow stock indices; and finally the performance of Ford and Toyota stock prices over the past 20 years to demonstrate that Japan and Japanese companies don’t outstrip the US and American companies, and concludes that lean isn’t sufficient to improve organizational performance and competitiveness.

I am by no means a macro-economist (as my MBA professors will no doubt attest), so I won’t argue his GDP and stock index analysis. But I’m happy to debate two premises: that lean management is pervasive, and that Toyota is no better managed than Ford.

Paris says that 

the use of [lean] tools and techniques are now ubiquitous across companies—and since they are nearly universally accepted and embraced by companies, they no longer offer themselves as a differentiator nor do they offer a competitive advantage as they once did. And as such, they expose the limitations of the Japanese way of running a business.

I’m not sure what companies Paris has been consulting to, but in my experience, the number of companies that have fully embraced the lean management system is vanishingly small. Autoliv. Lantech. Herman-Miller. Virginia Mason. A few others for sure, but certainly not to the point that lean has become “ubiquitous” and “universally accepted and embraced.” These organizations are the exception, not the rule—both in the US and in Japan. Moreover, lean is by no means “the Japanese way” of doing business. I’ve worked for two Japanese firms over the years; neither had any knowledge of, or interest in, lean tools or philosophy. To say that there is a universal Japanese way of management—or a universal “American way” of management—is ridiculous. Could there be any more divergent management styles than General Electric and Zappos? It’s like saying that there’s one universal Japanese style of literature, or one universal style of American beer. 

Now let’s turn to Paris’s argument that Ford’s and Toyota’s stock price is an adequate reflection of their performance. According to his analysis, this chart doesn’t show that Toyota is a significantly better-managed company than Ford. 

Hmm…where do I even start with this argument? First, Ford has significantly improved its product development processes over the past decade—in fact, modeling them after Toyota. Second, and more significantly, unless you’re completely naïve (or a Chicago School of Economics professor), you can’t really believe in the absolute wisdom of the market. If you really believe that stock price correlates with the quality of management, then I’ve got some stock for you to buy: Enron. Sunbeam. Worldcom. Lehman Brothers. 

Instead of looking at the stock price, let’s look at Ford and Toyota’s net income. That presents an entirely different (and I’d argue, a more relevant) picture of management quality:

Which company would you invest in now?

Paris closes with a straw man argument that reflects his shallow understanding of lean. He states that 

the company that focuses on cutting waste over innovation and driving value to the customer—innovation and value for which the customer is willing to pay a premium—is not at any particular advantage.

He’s absolutely correct here. . . except that lean is not just about cutting waste out of operational processes. The elimination of waste is certainly part of lean, but that’s in the service of driving value to the customer. Less waste means that more financial and human resources can be dedicated to the creation of customer value. 

I agree with Paris that we shouldn’t hold up the Toyota production system as a “holy scroll” and a “sacred scripture.” (In fact, I argue the same thing in my new book, Building the Fit Organization.) But in everything else, Paris is all wrong.