Toyota nearly went bankrupt near 1950 and had to lay off a third of their employees. A huge focus of the Toyota Production System as envisioned by Taiichi Ohno was to secure the long term success of the company. The priority of doing so is easier to see when you respect people and are in danger of witnessing the destruction of their careers.
I can’t find the quote (maybe Jon Miller, or someone else, can provide one), but I recall one along the lines of the first priority of management is providing long term viability of the company (my sense is this is first due to the respect of the workers and also for all the other stakeholders). The respect for people principle requires executive put the long term success of employees at the top of their thinking when making decisions for the company. I don’t believe it is a ranked list I believe there are several things right at the top that can’t be compromised (respect for people, safety of society, support for customers…).
This means innovating (Toyota Management System, Toyota Prius, Toyota Robots, Lexus brand, etc.) and seeking growth and profit with long term safety that does not risk the failure of the company. And it means planning for the worst case and making sure survivability (without layoffs etc.) is nearly assured. Only when that requirement is met are risks allowed. You do not leverage your company to put it at risk of failure in dire economic conditions even if that would allow you to be more profitable by various measures today. And you certainly don’t leverage just to take out big paychecks for a few short term thinkers.
The economic situation today is extremely uncertain. The whole eurozone financial situation is very questionable. The government debt burden in the USA and Japan is far too high (and of course Europe). China is still far from being a strong economy (they are huge, fast growing and powerful but it is still fairly fragile and risky).
The failures in the current financial system have not been addressed. Band-aids were applied to provide welfare to the largest 30 financial institutions in the form of hundreds of billions or trillions in aid. The system was left largely untouched. It is hard to imagine a more textbook example of failing to fix the causes and just treating the symptoms. This leaves a huge financial risk poised to cause havoc.
There are also plenty of positive signs. The performance of companies continues to be quite strong. Economies have been weak and at risk, but if you look at many companies and didn’t know about economic worries you wouldn’t see much risk. Long term investors like Warren Buffett, John Templeton, Jim Rodgers often speak about the great returns achieved historically in the face of many many worrying signs.
But if your organization seeks to be one based on lean management principles, you need be thinking of how the organization will fair if things get as bad as they could. This is more important than it was 10 or 20 years ago as the risks seem much greater today. You need to be taking actions today to assure that the company will survive (without layoffs), if things do get much worse. If the executives and board is mainly focused on how to optimize gains in the event things are reasonably good you are not practicing lean management, in my opinion. You also are not following Deming’s management ideas.
Related: Practical Ways to Respect Employees – Honda has Never had Layoffs and has been Profitable Every Year – Workplace Management by Taiichi Ohno – Bad Management Results in Layoffs
One thing the company I worked for did is cut pay across the board during tough times. Yeah, it was not an easy choice, I’m sure, but not one person got laid off. Today we are thriving and are back to being able to give bonuses. I have a high respect for my company and how they value us as employees and I hope other companies follow suite.
Speaking of the quote you couldn’t source, there is this HBR article: “The CEO’s Priority Should Be the Corporation’s Survival” (http://blogs.hbr.org/cs/2011/10/the_corporations_survival_shou.html)
“Whose interests should corporate leaders put first when making these decisions? My vote: the survival of the corporation itself. Not shareholders, not stakeholders, not customers, not society — not even profits. The corporation’s survival should come first.”
Thanks Sean, I was referring to one by Ohno. And as I remember it, he values the employees highly. It is either something I read, or have attributed to him in my mind.
I think the idea that the corporation has its own interests above the stakeholders is not my, or Deming’s, way of looking at things. Deming’s constancy of purpose (or my thoughts on Ohno) do focus on thinking long term about the company but that is not because Deming gave the company more importance than the stakeholders. It was that given the proper purpose of the company to provide benefit to those stakeholders then keeping it going to further those priorities was valuable.
It would not make sense to me to sacrifice the aims of the company for the end of keeping the company alive. If you are going to fail employees, customers, suppliers, society – do the best you can to minimize those failures and go out of business. Don’t stay in business at the expense of what should be the aim.
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