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The world’s worst company: how to manage change

Alonso Alvarez

Alonso Alvarez

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It was the worst company in the world, and it was the best company in the world …

Japan’s incredible boom in the late 1980s is a phenomenon that is difficult to understand for those who did not live through it. It was a major shock with ripples that reached into popular culture, but it was especially evident in industry, especially in the automobile industry.

The world's worst company: how to manage change | Illustration by Andy Baraja

It was the materialization of changes that started at Toyota, which extended to other Japanese industries and would have unexpected consequences such as being the origin of what we call Agile. The world discovered that Japanese cars were cheaper, more reliable, more fuel efficient and even more attractive than American cars, the largest and most established automobile industry of the time.

Learning how to work in Japan was an obsession, and for General Motors executives an unexpected opportunity arose when Toyota showed up looking for a plant where they could locally assemble their vehicles and thus avoid import tariffs.

Before the change, it was the worst factory in the world!

The GM Fremont Assembly factory in California had a series of characteristics that led to its closure in 1982: a very high absenteeism rate (20% daily), a long series of strikes and labor conflicts, sabotage and even crime problems within the facilities. It was also the factory with the lowest productivity and quality indexes.  

Closed and with its entire workforce laid off, it would have been demolished if Toyota had not found it to be a magnificent site to begin work on the new joint venture with General Motors, which they called NUMMI. It would be Toyota’s new factory in the United States. 

The world's worst company: how to manage change | Illustration by Andy Baraja

In the negotiations for the reopening, the powerful auto union demanded to rehire the factory’s former workforce. GM thought it was crazy, but despite the troubled history, Toyota was fine with hiring the old workers.  

To go ahead with the reopening, Toyota sent many of the new workers (including prominent union members) to Japan, to one of the factories, so they could have first-hand experience of the way they worked and understand the company’s culture, which included “revolutionary” aspects such as the importance of applying quality at all times; in a North American type factory, speed of delivery was a priority, so defects were corrected at the end in order not to stop (there were up to 90% of defective cars in some factories, which meant an extra cost to correct problems that could have been fixed earlier and more cheaply).

Transformation to the world's best factory

Or at least the best in the U.S. at the time turned out to be … the new Toyota and GM factory. 

Upon their return to the United States, the workers began to apply what they had learned and to share it with the rest of the workforce. In addition, a series of changes with a strong cultural impact were implemented: the same uniformity, no privileges in parking or canteens, decision-making by consensus, breaking down silos, continuous improvement, and rigorously applying quality at all stages. 

The Product Backlog starts to be built before the first Sprint (it is necessary to start planning) and will remain “in the works” until the product is considered complete (usually never), or no longer makes sense, is of interest or provides value.

The world's worst company: how to manage change | Illustration by Andy Baraja

In 1984, the first car came out of the old factory, with the old staff and a new culture and way of working. Soon they reached productivity and quality ratios equivalent to those of Japanese factories and much higher than the rest of GM’s factories. 

How is this possible? This is when the story, like all good stories, takes an unexpected turn.

“One-trick ponny” – Replicating Change Management without clear guidance

With the example of NUMMI, GM believed it had the recipe for the success it was looking for and tried to replicate it. 

This is where the Van Nuys factory came into play. With a history and conflict similar to Fremont, it was, in GM’s eyes, a candidate for a similar refounding. Although this time, with lessons learned, they wanted to do it on their own, without Toyota. 

It all started badly: at Fremont, employees saw the opportunity to get their jobs back in exchange for adopting changes; at Van Nuys, the changes started with a reduction in the workforce, as it was assumed that the Toyota model was more efficient.  

Adopting a teamwork and collective responsibility mentality clashed with the improvements and privileges earned by many years in the same position. Change and turnover were now the norm, which clashed with that culture. This teamwork also helped to identify uncommitted people, something that generated a lot of resistance. 

From the management side it was not easy either. They did not understand why they could not have a special cafeteria or privileged parking spaces. Much less why they should install an Andon cordon:

That mechanism invented by Toyota that allows anyone to stop production if something is not going as it should. Managers’ bonuses depended on the volume of production, it could not be tolerated that anyone could put it at risk for the sake of quality that, after all, it could be fixed in the end.

Another problem was the idea of continuous improvement (Kaizen).

If there was a problematic component in a Toyota factory, the company’s engineers would get together with the supplier’s engineers to find a solution and do a redesign. At GM, the central department in Detroit was not interested, mainly because their goal was to find suppliers at the lowest prices. As isolated silos, isolation was the norm, and collaboration offered no incentive. 

The world's worst company: how to manage change | Illustration by Andy Baraja

Moral of the story: How to apply change management and transformation successfully

NUMMI survived for a few more years. GM tried to introduce Toyota’s system for 15 years without success, and ended up declaring bankruptcy in 2009, abandoning production at NUMMI. Toyota, with factories of its own in the USA (the learnings from doing a joint venture led them to continue by themselves), also closed its line. The Fremont facility has now a new life producing vehicles for Tesla. 

This story can teach us many things, but personally I’m sticking with two: 

Change is not about following a recipe.

There are well-documented frameworks and methods and success stories to back them up, but that doesn’t imply that they will work as-is in any context and environment. So much for those who try to replicate certain models seeking to get the results by the forms and not the substance, as in a “cargo cult”. 

Change needs credibility.

If, for example, we all seek to be a team, we will have to break down barriers, privileges and caveats. If the focus is on quality, we will have to align ourselves to promote the mechanisms to achieve it, instead of having objectives that contradict each other. 

And one more thing:

Change needs at the very least understanding and complicity, it cannot be done against the rest of the company. But what it needs above all is alignment and explicit support to make it credible and decisive.

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About the Author

Alonso Alvarez

Alonso Alvarez

Alonso Alvarez, Netmind Lead Expert in Enterprise Agility, has over 25 years of experience and a successful track record of increasing personal and team productivity through agile methods. His knowledge spans agile related methods of Scrum, Kanban, DevOps, SAFe, Management 3.0, and Lean into software engineer areas such as cloud, video, and content management. and has played many roles in the software industry, including Developer, Consultant, QA, Project Manager and Department Manager. As an instructor, his objective is to help students gaining new skills and knowledges; as coach and mentor, he helps them overcome challenges and difficulties by putting in practice new ways of working and organizing. He is passionate about innovation, future forecasting, and overall agile philosophy, frameworks, and methods. Alonso is certified and experienced Scrum Master, Product Owner and Agile Coach. Author of three books and several articles about Agile methods and practices. Mountain bike, nature, cinema, traveling and photography are his other passions. Connect with Alonso on LinkedIn!

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