Friday, September 18, 2015

Lessons from NUMMI

"This American Life" did an episode on the 1980s collaboration between GM and Toyota at the plant in Freemont, CA called NUMMI. This plant had been failing and the Japanese were the biggest threat to the American Automakers. What could GM learn from Japan? There are a number of lessons from the experience and the episode. One has to do with where to vest decision rights to shut down the production line. Another is that imitation is particularly difficult (RBV?). Perhaps another is that it takes generational change or, as my adviser repeated, "Real change comes one funeral at a time."

Hat tip: Isaac Labauve


  1. I have read about the NUMMI collaboration in the past. A poorly designed company will consummate unprofitable transaction or fail to consummate profitable ones (Froeb, ET all pg. 21, 2014). The NUMMI plant workforce was considered the worst in the industry, which was fascinating to me. They were basically impeding progress for GM. Aside from wanting to build quality and profitable small cars, GM wanted to introduce lean TPS concepts to its structure at the poorly performing plant. An economy is efficient if all assets are employed in their highest-valued uses (Froeb, ET all pg. 18, 2014). As for Toyota they were anxious to counteract pending import restrictions by starting to build quality small cars in the US. A good policy facilitates the movement of assets to higher valued uses; and a bad policy prevents assets from moving or, worse, moves assets to lower-valued uses (Froeb, et all pg. 18, 2014). Although GM struggled to implement TPS across all plants, the NUMMI plant had successfully improved efficiencies. The previously awful workforce was producing quality cars with fewer defects than those even produced in Japan.
    That all being said I agree sometimes change starts one funeral at a time. The fact that GM could not implement TPS to other plants makes this marriage a failure. Did the venture pay off for either company despite analysis that it never made a profit? Some suggest that because GM still lags quality in North America, the NUMMI experiment failed (Kiley, 2010). Cultural dysfunction limited managements’ ability to fully benefit from its TPS practices at NUMMI, making this collaboration a failure.
    Froeb, L.M., McCann, B.T., Ward, M.R. & Shor, M. (2014). Managerial Economics: A Problem Solving Approach. Mason, Ohio: Southwestern Cengage Learning.
    Kiley, David. April 2, 2010 “Goodbye, NUMMI: How a Plant Changed the Culture of Car-Making” retrieved on October 4, 2015 from

  2. At the time the prevailing wisdom was that Japan Inc., with it's centralized decision making would overtake the U.S. as the worlds leading economic power. This proved to be linear thinking, as Japan ran into demographic, and structural economic issues. The banking system had bad loans relating to unproductive overbuilding, a real estate boom and bust, and stock market decline. This parallels China's issues in 2015. China's demographic issues may be more acute because of the one child policy, in place since the 1970's. China also has some serious internal issues relating to Tibet, and a restive Muslim population suppressed in the West. I feel that linear thinking relating to China's rise as an economic power are similarly overstated. Opacity in government statistics, suppression of political dissent, and corruption represent serious risks to Chinese economic progress over the long term.

  3. Lee LichtensteinSeptember 27, 2015 at 9:21 PM
    Chapter 2 The one lesson of business

    For discussion: How do I create wealth? Relating to my dental practice
    Value = willingness to pay. Desire + income. Voluntary transactions, between individuals or firms, create wealth.

    As introduction, I am dual trained as both a dentist and an anesthesiologist. My office, as the physical plant, was designed to incorporate all of the necessary structures, equipment, and flow patterns generally found in the hospital operating room setting and ambulatory surgical center environment in the facility of a private dental practice.

    Selected patient groups can be treated under sedation or general anesthesia. (We also treat patients “awake” as per their request and procedures done.) The spectrum of patient groups covers: those with generalized and specific fears, phobias and anxieties (examples: extreme fear of “the needle,” phobias about certain procedures (“root canal therapy”), and anxiety about having anyone do anything inside their mouth. The age range spans 2 years old to the mid 80’s. A brief listing of problems, issues and concerns include: autism spectrum disorders, ADD/ADHD, Parkinson’s disease and others causing tremors, Alzheimer’s disease, developmental disorders such as Down syndrome, psychiatric disorders, behavior management / non-co-operations situations, extreme difficulties getting numb, severe hyperactive gag reflexes, or the need for complex treatment to be rendered at one appointment.

    One aspect of interaction with patients or the family members is to instill the value of preserving the patient’s dentition when and wherever possible. Often, the concerned individual/s in control appreciates taking restorative care of teeth, roots, gums and bone, smile and appearance, eliminating foul mouth odors and keeping the patient’s mouth and “bite” intact.

    Sometimes there is a lack of education and awareness that the patient’s teeth and healthiness of the mouth is very important. In these cases the mouth, teeth, and oral health have very low values. If I can teach and improve the perception of importance of these structures, the parents, spouse, or significant persons may agree to scheduling restorative treatment so the patient can keep their dentition. By doing so, there is an increase in the awareness and value of the healthy mouth. Thereby effecting a better voluntary transaction – to desire and pay for the necessary restorative treatment.

    If the perception of non-importance remains, the treatment plan for the patient moves to a lower value tier; generally removal of teeth, and only modest, minimal or no restorative dental care. The practice philosophy to repair, restore, or rebuild the patient’s dentition, teeth, oral health, smile (the cosmetic and esthetic aspect) results in a ‘win – win’ use of transferring assets. There is still a ‘win – win much less’ (lose) result even if I remove teeth (whether restorable or not restorable) as the patient’s care providers pay for treatment, although the resulting value may be less than desirable.

  4. The joint venture between General Motors and Toyota appeared to be forged in the idea of creating a sustainable competitive advantage. This advantage is intended to deliver a like product at a lower cost and of higher quality (Froeb, 2014). The sustainable advantage created by the two automakers was to implement lean manufacturing and an advantage through resources. Implementing lean manufacturing and utilizing employees as an advantaged resources provides for resource based review(RBV). This RBV provides for a working partnership and resource that was difficult for other manufacturers to duplicate. Existing culture, based in US manufacturing and lean practices were new in the 1980's. This partnership provides and new frame new framework was not easy for other manufacturers to duplicate. This new format provided an advantage until other manufacturers were able to evolve. The NUNNI operated until 2010, closed and is now reopened as a manufacturing facility for Tesla (Wikipedia, 2015).

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