Success Secrets: The Toyota Production Method Part 4

I am discussing the Toyota Production System, as articulated in a great article by Clayton Christensen . Earlier posts are here , here, and here. In particular, I am attempting to broaden the scope of the discussion beyond the car business, into various business and life domains.

To review, the four key principles, as defined in Christensen's article are:

1. Highly Specified Activities
2 Clearly define the transfer of material and information
3. Keep the pathway for every product and service simple and direct
4. Detect and solve problems when and where they happen

Principle 4 , as articulated n Christensen’s article is is “Detect and solve problems where and when they happen using the scientific method”. The article elaborates the method later:

Analyze the current state of things
Document it
Formulate a hypothesis that includes an experiment with an expected outcome that could be measured and compared with the actual outcome

In my own experience, particularly with my trading activities, this comparison of expected with actual results led me to the greatest progress. But I was unable to make any progress until I documented my results with enough detail to be able to draw some statistical conclusions. This data opened my eyes and I was indeed able to make certain hypotheses about how to reduce my losing trades, and increase my performance. Often enough, the changes I made seemed to work.

Without adequate documentation, you can’t change your weight, your cholesterol, your finances, or any other measurable commodity in your life. Once documented, it is much easier to generate testable hypotheses for change.

I should mention that the documentation/hypothesis/solution process is not necessarily limited to numerically measurable events. I have mentioned Doug Newburg’s concept of Resonance from time to time. A simple journal of what seems to be working and what seems to be not working often has great results. If you feel lousy after eating a candy bar and great after a brisk walk, making a “Resonance Diary” can reinforce what is working and what is not working in your life. In my monthly reviews of my journal, I have a section I call “What works”. As I look at that section over time, I see patterns in behaviors that seem to work, as well as those I want to change.

Similarly to the other facets of the Toyota Production System, specifying an action is key to understanding it. Specifying a process is the key to consistency. And, in problem solving, specifying and carefully documenting the problem is the key step in the solution. Along these lines I also recommend some of the Kepner-Tregoe methods found in The Rational Manager .

Life comes at us in random order, good and bad, without any chapter headings or identifiable rhyme or reason. But we can take a lesson from Toyota in how we choose to order that experience, and also how we choose to optimize our actions in order to get the greatest rewards.

Success Secrets: Bloomberg on Jamie Dimon

Bloomberg has posted a terrific article about JP Morgan CEO Jamie Dimon . I have mentioned both Dimon, mentor, Sandy Weil (who built the Citibank Colossus) here and here. I have been fascinated with Dimon’s success ever since he was CEO of Bank One and also because of his prominence in Sandy Weil’s book The Real Deal: My Life in Business and Philanthropy .

The entire Bloomberg article is worth saving, but here are a few of the Success Secrets..

1. Stay within your “Circle of Competence. This Success Secret is deceptive in its simplicity and vast in its power. Billionaire Charlie Munger mentions it frequently. Another related Munger/ Warren Buffett hallmark: understand your business thoroughly. If this were football, the concept would be “work hard on the fundamentals”. Exotic ideas have their place, but being really good at “making the doughnuts” has a high probability of creating a winning business. There are a lot more successful accountants than Perpetual Motion Machine builders.

From the Bloomberg article:

He {Dimon} says that insurance, for instance, is an outlier for a bank. "You have to stay focused on where you can win," he says

And again…

Dimon largely steered clear of both collateralized debt obligations…and so- called structured investment vehicles”…

And again

"JP Morgan is still very interested in raising deposits the old-fashioned way," {i.e. seeking consumer deposits, credit cards, etc} …. "Dimon has access to federally insured deposits, and that's a huge advantage in the world that's developing.


2. Stay risk averse. Dimon focuses on maintaining a strong balance sheet (also mentioned often in Sandy Weil’s book),and called by Dimon, a Fortress Balance Sheet. From the Bloomberg article:

Dimon spent much of the past three years streamlining a bank he says he wants defined by efficiency, stable sources of revenue and risk management that protects assets, a concept he refers to as his "fortress balance sheet….sources of funding can disappear very quickly."

This Success Secret is as valuable in personal life as it is in business life, and as true (or truer) of small business as big business. The less debt, the better. The more ready cash, the better.

3. Intense, obsessive work ethic

From Bloomberg:
Dimon is a fanatic about details, says one former competitor, David Komansky. "Jamie has always had a full tank of gas," says Komansky, who ran Merrill Lynch from 1996 to 2002. "It's very much about having your oar in the water all the time, 24 hours a day, 7 days a week and dealing with hundreds and hundreds of unrelated issues every day. Jamie has clearly excelled at the management dimension of these jobs."

Elsewhere in the article an associate says “, that when he worked for Dimon, he rarely saw him take a break. While other executives may relax by reading about sports, "Jamie would read a 10K," he says. "It's related to his doggedness to get stuff done."

So, to review a few of the Success Secrets of Jamie Dimon

1. Read the Bloomberg article. It’s great.
2. As simple a business model as possible
3. Stay risk averse. Hone your “fortress” to withstand the inevitable chaos that surrounds life and business
4. Maintain an intense work ethic. If you’re not interested enough to work hard, it might pay to find something that will keep you fascinated.

Some related posts:

Scwheich's "Crashproof Your Life"

Obsession

Scott Young on task completion



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Success Secrets: The Toyota Production System Part 3

I am discussing the Toyota Production System, as articulated in a great article by Clayton Christensen Earlier posts are Here and Here. In particular, I am attempting to broaden the scope of the discussion beyond the car business, into various business and life domains.

To review, the four key principles are:

1. Highly Specified Activities
2 Clearly define the transfer of material and information
3. Keep the pathway for every product and service simple and direct
4. Detect and solve problems when and where they happen

Today I am discussing Rule 2: Clearly Define Transfer of materials and information, and a corollary mentioned in the article is: Pathways must be simple and direct.

It is easy to see that this rule has a far wider applicability than building automobiles.

There are at least three consequences of violating this rule:

1. Diffusion or confusion of responsibility
2. Loss or degradation of information
3. The Incentive Bias

How do these consequences unfold?

If you don’t know who is going to FedEx the job to the client…it probably won’t get done.

If you don’t know who is going to take Jimmy to soccer practice, …it probably won’t get done.

Another example of paths that are not “simple and direct" comes from my experience as a trader. In the late 90’s the only way to get an order to the pit was to phone my broker. Electronic futures trading was not available at that time (at least to me). I would call the number, wait for the guy to answer, tell him my order, he would phone it into the pit, and then, sometime between 5 and 30 minutes later, I would get my fill. Sometimes the market would move hundreds of dollars away from the point I wanted to enter at, causing losses for me, but gains for a lot of the other providers in the chain. Now, since I can electronically enter the trades myself, I get filled at the price I expect, and I save a lot of money.

What does it mean when you eliminate just one person from an information path?

One fewer salary
One fewer set of benefits
One fewer person to be out sick, late, on vacation
One fewer person who forgot to listen to their voicemail, read their email, get the memo…etc

The savings of time, money, and angst are clearly huge as one pares down the path in a process.

As you pare down the people in a given process path, you also progressively eliminate what Charlie Munger calls the Incentive Bias. I have mentioned Charlie Munger’s work extensively. The Incentive Bias states that individual suppliers (salespeople, brokers, doctors, lawyers, ad infinitum) will serve you in accordance with the incentives that benefit the supplier, not necessarily the customer. I am not saying the incentive bias is 100% bad, after all, the profit motive is what creates all the services we use every day. However, as these biases accumulate, the efficiency of the process path degrades. Suppose you have five people in your process path. If each one of them just holds you up long enough to take a 15-minute coffee break, you’ve lost over an hour. And a coffee break is the smallest incentive bias I can think of. More normally, your suppliers want to make money by billing you extra hours, supplying you in ways that maximize their profits, working on their highest paying client (not you), etc. If you keep the path “simple and direct”, eliminating as much incentive bias as possible, through online purchases, auction tactics, “no haggle” pricing, careful questioning, you are actually using the Toyota Production system to your advantage.

I’ll continue my discussion of TPS in an upcoming post.

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