Organizational Effectiveness

Robert Hogan Hogan Assessment Systems I often propose as a general law the view that, if you find an important problem in human affairs, academic psychology will have nothing to say about it. This generalization is especially true with regard to the topic of organizational effectiveness. It is hard to imagine a more important issue, because all of us must live and work in organizations, and the success (or failure) of those organizations has major consequences for our individual wellbeing. I have spent years reading academic accounts of organizational effectiveness with growing impatience; it finally occurred to me that the subject should be approached empirically—we should study effective organizations to see what is distinctive about them. Many people think Toyota may be the best run organization in the world. By the end of 2 0 , o oa makt a i lai w s 4 blnd lr—which is larger than the market 0 6 T y t’ re cp azt n a 2 0 io oas s ti o l i l capitalization of General Motors, Ford, Daimler-Chrysler, Honda, and Nissan combined. Toyota has 295,000 employees world wide. The industry metric for product desirability is something called “ ti unrt” o l gd e an w cr io ad a r l ? T erti unrt fr o oai r a tr ae—h w o e l n o s e a s n el ’ o t e s t h ea tr ae o T y t s l 29 days; for BMW, it is 31 days; for Daimler Chrysler, the number is 107 days. Even Bill Gates, the founder of Microsoft, asks “ a cnw l r f m T y t? Wh t a e e n r a o o oa”Essays on Toyota appear frequently in the popular press, the most recent of these was in the New York

Times on February 16th, 2007. Journalistic accounts are never very systematic, but read closely it
is possible to extract some useful information from them. Based on this, I think there are nine themes that characterize the Toyota model; these themes can serve as provisional general rules for organizational effectiveness. These generalizations are subject to future modification, but in the meantime, they are better than no generalizations at all. T ef s t e c n en T y t’ ln tr p rp cie h i t h me o c r s o o as o g em es e t —which contrasts r v da taywt te“u a dd mp me tl o ma yUS og n ai s Toyota plans to be rmai l i h p mp n u ” nat f n .. ra i t n. cl h i y z o in business 100 years from now. Toyota started working on Prius, their hybrid car, in 1991—

steady improvement. and country music lovers. It means taking the customer into account during the product design phase. mid-range cars.h n o a u mo e n h g te ut r o s e ” n h s l at f t n o s l Ultimately. and luxury cars.h r iavr si da d s h u l f o oa as n u a tee s ey kl n i y s s l e eccentric mechanic who is so well known that Ferrari hired him to build their last entry in the annual Mexican Road Race. products. In their view. so they have pickups. wear gloves while operating their trucks. But Toyota believes they should serve every kind of customer.because they understood that the world will inevitably run out of oil. the Tundra. motorcycle lovers. they will come. The customer experience is . etr u l cr fres n yta cmp rb mo e f m n o oa ae b t q at as o l mo e h n o aa l d l r s e i y s e s o their competitors.Iy uaeefi tnteti s h ce t o s’ “ o r fc n i h h g te ln d en f ie n i t se te y ucnp t n yi oti s h cs me d e se a dtiia p ro kaizen. The third theme is customer service. They then designed specific Tundras for 31 different types of users. so Toyota made the dashboard buttons bigger for those users. At the February (2007) Detroit Auto Show. Kaizen refers to continuous. Construction workers. e . kaizen is the antithesis of complacency. It means never being satisfied. As they note. How high iteq at o T y t’cr? I T l . They do not focus on a quick return on investment. home builders. it will be able to produce higher quality products for less money—i T y t’cs. They went to specific locations and watched people in these buckets drive their pickups. It means continuous improvement in processes as well as products. Customer service is more than being nice to people in a showroom. or performance. F r o oa h w vrb i a l t b i cr moeefi t d en n csai me n o T y t. savings on the assembly line means better cars without making customers pay more for them. and he says Toyota is the best built car in the world. for example. they focus on long-lasting returns on investment. They developed an empirical taxonomy of pickup users which contained five buckets or categories: hunter/fishermen. he is the best mechanic I know. If a company pursues kaizen. Toyota introduced its new pickup truck. NASCAR fans. o ee. e g b o ud as r fc nl o s’ eesry a n e l ie y t l more profitability. it means not assuming that if you build it. entry level cars. The second theme concerns kaizen. Their preparation for this roll out was extraordinary. it means never being satisfied with processes.

We (Hogan Assessment Systems) have not really figured this one out—but we understand the problem and we are working on it. They believe in customization in short runs. The seventh theme concerns organic growth. that means that GM has finally gotten into the game. car industry is dead. They understand that they must plough profits back into R&D. There are 21 versions of the Tundra pickup. the latter involves the entire organization. the Japanese term for step by step. and production feeds back into R&D. One American industry economist noted that. Toyota wants to grow organically but steadily.000 in additional . The sixth theme is an extension of the notion that Toyota should serve every kind of customer. from product design to car manufacturing to follow up maintenance. Suppose. and systems are updated.the primary focus for the business. To create new products like the I-Pod or the Prius is much easier than developing a new manufacturing process. the U. R& D drives marketing. R&D is part of kaizen.000. but the problem is to get ahead of the game. their huge Georgetown. production slows down while parts. This is a very hard problem—how to customize profitably.000. At Toyota. Toyota spends $20. he asked that GM could make a car as good as Toyota this year. The fifth theme concerns organization-wide teamwork. The extra cars they produced yielded $100. In 2001. production shapes the sales effort and the sales effort shapes production. And they have—they talk about moving jojo. Henry Ford once said that Ford customers could have cars in any color they wanted as long as it was black. In 2006. R& D drives production. The fourth theme concerns the effort Toyota puts into Research and Development (R&D). the transition took 16 days.000 per day on R&D. Kentucky plant needed 59 days to complete the conversion to the new model of Camry. Toyota practices teamwork better than almost anyone. Toyota is the polar opposite. there are no silos. getting more efficient all the time. processes.S. The marketing department drives R& D. if this trend continues. and in doing so they seriously outspend General Motors. The former involves a few individuals. Teamwork is a self-conscious value: the goal is to eliminate turf wars and fiefdoms. When a plant changes production to a new model.

It is human nature to cover up mistakes rather than call attention to them. economists have ep i dd frne i cmp n sp r r nei tr o w ressi . George Bush is a poor leader). and Germany. They called the variance in performance that is u ep i db teefc r “xdefc ”w i iad mmyvr b . however.pdf) which shows that the l g s p ro tevr nei cmp n sp r r necnb ep i di tr o teq at o a et at fh ai c n o a i ’ ef ma c a e x ln n ems fh u l f r a e o ae i y their management. This is a minority position. unlike psychologists. The eighth theme concerns how Toyota handles mistakes. Toyota says it doesn w n G t ’ at M o t collapse. it wants GM to go away slowly so that Toyota can fill in behind in a high quality way. because that is the only way they can be fixed. but I stand by it.ac. and what accounts for the differences in their performance. h h s u o i es c ai l ae Two economists (Nick Bloom & John Van Reenen) published a paper in 2006 (http://cep. Toyota has deemed it a virtue and an achievement to identify problems.revenue—and just by improving processes incrementally. lean practices. Academics define leadership in terms of who is in charge: e. UK. n x ln a e y h s at s f e f t . and the quality of capital markets.n et n i x ln a e iee csn o a i ’ ef ma c n ems f okr’kl i s f e o l v me tn s technology. Alfred Chandler argued that professional management was the key to the rise of U.S. They surveyed the management practices of more than 700 manufacturing firms in the US. he was largely ignored. Obviously identifying problems publicly is a corollary of kaizen. a vastly misunderstood topic about which academic psychology knows very little in a rigorous way. industry relative to France or the U. France.uk/textonly/people/bloom/papers/BloomVanReenen2. Historically. and internal communications. The final theme concerns leadership.. In the early 20th century. . I believe that leadership should be defined in terms of the performance of the group of which the leader is in charge (and in these terms. have always been interested in the performance of organizations. George Bush is the leader of the free world.lse.g. Economists. documentation around errors.K. They evaluated the quality of management in terms of four categories as follows:  Operations: process improvement.

Everyone says Toyota has been blessed with good leadership. (This suggests that talented middle management can cover for incompetence at the top—for a while. Good leaders are more concerned with the performance of the organization .h rao a l eso teg a (o ’js p t u eso p o ls o l te e sn b n s fh o l d n ut u n mb r n e p ’ s e s t e heads).G o ma a es rv ete s fwt s utr a dd et nb tra o d n ei) h n e o d n g r po i h i t f i t c e n i co u t t t s d r a h r u r i e them with respect. r a  The quality of management through the entire organization mattered more than the quality of the senior executives by themselves.  Monitoring: tracking and following up on individual performance. better managers. work well as part of a team. senior executives are paid modestly compared with General Motors. it would score very well across the four categories of management evaluation. follow sensible procedures. there is minimal hierarchy. Good workers regularly come to work. and accept (r o ’rs tca g . (2) kaizen. Targets:g a . the transparency of the goals (do they make sense?). Hiring better people means hiring better workers. How does assessment fit with all of this? The link is through the concept of kaizen. treat customers well. it has no unions.  T ed ge t w i teema a e n pate w r o sre d p n e o “ e h e re o h h h s c n g me t rccs ee bevd e e d d n t i h fm’l d r” i se es. firms with low scores failed. and they have a clear philosophy: (1) enrich and serve society. Assessment is the key to hiring better people. and (3) plan for the long run. I seems that Toyota is simply better led and better managed than its competitors. There were three key findings from this study:  Firms with high scores on these four dimensions did well. responses to poor individual performance.  Incentives: links between pay and performance.) Returning now to Toyota. Hiring better people is part of continuous improvement. Using valid assessments will yield better results than using the DISC or OPQ. and better leaders. the culture is informal and relaxed. The company is very profitable.

Good leaders treat their staff with respect but hold them accountable for their performance. self-centered. . and have the capacity for change. self-promoters. Good leaders are not charismatic. Valid assessment is the key to continuous improvement of personnel. promote an appropriate philosophy and vision.than with the advancement of their own careers.