Flexibility Versus Efficiency ? A Case Study of Model Changeovers in the Toyota Production System

This article seeks to reconceptualize the relationship between flexibility and efficiency. Much organization theory argues that efficiency requires bureaucracy, that bureaucracy impedes flexibility, and that organizations therefore confront a tradeoff between efficiency and flexibility. Some researchers have challenged this line of reasoning, arguing that organizations can shift the efficiency/flexibility tradeoff to attain both superior efficiency and superior flexibility. Others have pointed out numerous obstacles to successfully shifting the tradeoff. Seeking to advance our understanding of these obstacles and how they might be overcome, we analyze an auto assembly plant that appears to be far above average industry performance in both efficiency and flexibility. NUMMI, a Toyota subsidiary located in Fremont, California, relied on a highly bureaucratic organization to achieve its high efficiency. Analyzing two recent major model changes, we find that NUMMI used four mechanisms to support its exceptional flexibility/efficiency combination. First, metaroutines (routines for changing other routines) facilitated the efficient performance of nonroutine tasks. Second, both workers and suppliers contributed to nonroutine tasks while they worked in routine production. Third, routine and nonroutine tasks were separated temporally, and workers switched sequentially between them. Finally, novel forms of organizational partitioning enabled differentiated subunits to work in parallel on routine and nonroutine tasks. NUMMI’s success with these four mechanisms depended on several features of the broader organizational context, most notably training, trust, and leadership. (Flexibility; Bureaucracy; Tradeoffs; Routines; Metaroutines; Ambidexterity; Switching; Partitioning; Trust) Introduction The postulate of a tradeoff between efficiency and flexibility is one of the more enduring ideas in organizational theory. Thompson (1967, p. 15) described it as a central “paradox of administration.” Managers must choose between organization designs suited to routine, repetitive tasks and those suited to nonroutine, innovative tasks. However, as competitive rivalry intensifies, a growing number of firms are trying to improve simultaneously in efficiencyand flexibility-related dimensions (de Meyer et al. 1989, Volberda 1996, Organization Science 1996). How can firms shift the terms of the efficiency-flexibility tradeoff? To explore how firms can create simultaneously superior efficiency and superior flexibility, we examine an exceptional auto assembly plant, NUMMI, a joint venture of Toyota and GM whose day-to-day operations were unD ow nl oa de d fr om in fo rm s. or g by [ 12 8. 32 .7 5. 11 8] o n 28 A pr il 20 14 , a t 1 0: 21 . Fo r pe rs on al u se o nl y, a ll ri gh ts r es er ve d. PAUL S. ADLER, BARBARA GOLDOFTAS AND DAVID I. LEVINE Flexibility Versus Efficiency? 44 ORGANIZATION SCIENCE/Vol. 10, No. 1, January–February 1999 der Toyota control. Like other Japanese auto transplants in the U.S., NUMMI far outpaced its Big Three counterparts simultaneously in efficiency and quality and in model change flexibility (Womack et al. 1990, Business Week 1994). In the next section we set the theoretical stage by reviewing prior research on the efficiency/flexibility tradeoff. Prior research suggests four mechanisms by which organizations can shift the tradeoff as well as some potentially serious impediments to each mechanism. We then describe our research methods and the NUMMI organization. The following sections first outline in summary form the results of this investigation, then provide the supporting evidence in our analysis of two major model changeovers at NUMMI and how they differed from traditional U.S. Big Three practice. A discussion section identifies some conditions underlying NUMMI’s success in shifting the tradeoff and in overcoming the potential impediments to the four trade-off shifting mechanisms. Flexibility Versus Efficiency? There are many kinds of flexibility and indeed a sizable literature devoted to competing typologies of the various kinds of flexibility (see overview by Sethi and Sethi 1990). However, from an organizational point of view, all forms of flexibility present a common challenge: efficiency requires a bureaucratic form of organization with high levels of standardization, formalization, specialization, hierarchy, and staffs; but these features of bureaucracy impede the fluid process of mutual adjustment required for flexibility; and organizations therefore confront a tradeoff between efficiency and flexibility (Knott 1996, Kurke 1988). Contingency theory argues that organizations will be more effective if they are designed to fit the nature of their primary task. Specifically, organizations should adopt a mechanistic form if their task is simple and stable and their goal is efficiency, and they should adopt an organic form if their task is complex and changing and their goal is therefore flexibility (Burns and Stalker 1961). Organizational theory presents a string of contrasts reflecting this mechanistic/organic polarity: machine bureaucracies vs. adhocracies (Mintzberg 1979); adaptive learning based on formal rules and hierarchical controls versus generative learning relying on shared values, teams, and lateral communication (McGill et al. 1992); generalists who pursue opportunistic r-strategies and rely on excess capacity to do well in open environments versus specialists that are more likely to survive in competitive environments by pursuing k-strategies that trade less flexibility for greater efficiency (Hannan and Freeman 1977, 1989). March (1991) and Levinthal and March (1993) make the parallel argument that organizations must choose between structures that facilitate exploration—the search for new knowledge—and those that facilitate exploitation—the use of existing knowledge. Social-psychological theories provide a rationale for this polarization. Merton (1958) shows how goal displacement in bureaucratic organizations generates rigidity. Argyris and Schon (1978) show how defensiveness makes single-loop learning—focused on pursuing given goals more effectively (read: efficiency)—an impediment to double-loop learning—focused on defining new task goals (read: flexibility). Thus, argues Weick (1969), adaptation precludes adaptability. This tradeoff view has been echoed in other disciplines. Standard economic theory postulates a tradeoff between flexibility and average costs (e.g., Stigler 1939, Hart 1942). Further extending this line of thought, Klein (1984) contrasts static and dynamic efficiency. Operations management researchers have long argued that productivity and flexibility or innovation trade off against each other in manufacturing plant performance (Abernathy 1978; see reviews by Gerwin 1993, Suárez et al. 1996, Corrêa 1994). Hayes and Wheelwright’s (1984) product/process matrix postulates a close correspondence between product variety and process efficiency (see Safizadeh et al. 1996). Strategy researchers such as Ghemawat and Costa (1993) argue that firms must chose between a strategy of dynamic effectiveness through flexibility and static efficiency through more rigid discipline. In support of a key corollary of the tradeoff postulate articulated in the organization theory literature, they argue that in general the optimal choice is at one end or the other of the spectrum, since a firm pursuing both goals simultaneously would have to mix organizational elements appropriate to each strategy and thus lose the benefit of the complementarities that typically obtain between the various elements of each type of organization. They would thus be “stuck in the middle” (Porter 1980). Beyond the Tradeoff? Empirical evidence for the tradeoff postulate is, however, remarkably weak. Take, for example, product mix flexibility. On the one hand, Hayes and Wheelwright (1984) and Skinner (1985) provide anecdotal evidence that more focused factories—ones producing a narrower range of products—are more efficient. In their survey of plants across a range of manufacturing industries, Safizadeh et al. (1996) confirmed that in general more product variety was associated with reliance on job-shop rather continuous processes. D ow nl oa de d fr om in fo rm s. or g by [ 12 8. 32 .7 5. 11 8] o n 28 A pr il 20 14 , a t 1 0: 21 . Fo r pe rs on al u se o nl y, a ll ri gh ts r es er ve d. PAUL S. ADLER, BARBARA GOLDOFTAS AND DAVID I. LEVINE Flexibility Versus Efficiency? ORGANIZATION SCIENCE/Vol. 10, No. 1, January–February 1999 45 On the other hand, Kekre and Srinivasan’s (1990) study of companies selling industrial products found that a broader product line was significantly associated with lower manufacturing costs. MacDuffie et al. (1996) found that greater product variety had no discernible affect on auto assembly plant productivity. Suárez et al. (1996) found that product mix flexibility had no discernible relationship to costs or quality in printed circuit board assembly. Brush and Karnani (1996) found only three out of 19 manufacturing industries showed statistically significant productivity returns to narrower product lines, while two industries showed significant returns to broader product lines. Research by Fleischman (1996) on employment flexibility revealed a similar pattern: within 2digit SIC code industries that face relatively homogeneous levels of expected volatility of employment, the employment adjustment costs of the least flexible 4-digit industries were anywhere between 4 and 10 times greater than the adjustment costs found in the most flexible 4digit industries. Some authors argue that the era of tradeoffs is behind us (Ferdows and de Meyer 1990). Hypercompetitive environments force firms to compete on several dimensions at once (Organization Science 1996), and flexible technologies enable firms to shift the tradeoff curve just as quickly as they could move to a different point on the existing tr