E X C H A N G E The Toyota Way in Services: The Case of Lean Product Development Jeffrey K. Liker and James M. Morgan* Executive Overview Toyota’s Production System (TPS) is based on “lean” principles including a focus on the customer, continual improvement and quality through waste reduction, and tightly integrated upstream and down- stream processes as part of a lean value chain. Most manufacturing companies have adopted some type of “lean initiative,” and the lean movement recently has gone beyond the shop floor to white-collar offices and is even spreading to service industries. Unfortunately, most of these efforts represent limited, piecemeal approaches— quick fixes to reduce lead time and costs and to increase quality—that almost never create a true learning culture. We outline and illustrate the management principles of TPS that can be applied beyond manufacturing to any technical or service process. It is a true systems approach that effectively integrates people, processes, and technology— one that must be adopted as a continual, comprehensive, and coordinated effort for change and learning across the organization. Introduction T hese days it is difficult to get through a business school curriculum without analyzing case ex- amples of Toyota and Toyota group companies. Viewed as one of the excellent companies in the world, most cases and discussions revolve around the famed Toyota Production System (TPS). TPS is the foundation for what has become a global movement to “think lean.” Most manufacturing companies in the world have adopted some type of “lean initiative,” and this concept is now spread- ing to a diverse range of organizations, including the defense department, hospitals, financial insti- tutions, and construction companies. The Toyota Way (2004) became an international bestseller because it delves more deeply into the underlying culture and thinking that manifests as the tools and techniques generally associated with lean manufacturing. Many manufacturing companies have learned the hard way that the isolated application of lean tools and techniques does not lead to sustainable improvement. The broader organizational culture of the firm separates the short-term improvements from the long-term lean enterprises. And, to be effective, lean thinking cannot stop at the shop floor. Management principles must extend beyond the shop floor, as they do at Toyota, and be found in the board room, the sales offices, and quite clearly in the product development process. The Machine that Changed the World (Womack et al. 1990) introduced the term “lean” and then essentially described Toyota. While there were many companies studied, we later learned in Lean Thinking (Womack and Jones 1996) that Toyota was in fact the model for lean. Womack and Jones have emphasized that the production floor was just one chapter in The Machine that Changed the World. The book was about a total enterprise working together to give customers what they * Jeffrey K. Liker is Professor of Industrial and Operations Engineering at the University of Michigan. Contact: liker@umich.edu. James M. Morgan, Ph.D. is Director, SBU Engineering, Ford Motor Company. Contact: jmor990@aol.com. 2006 5 Liker and Morgan