Toyota’s Lessons for Shared Services and BPO


    Today’s news was that Toyota surpassed General Motors to become the #1 automaker in the World this quarter. This is not just the U.S, where rising Fuel Costs and the need for reliable, small fuel efficient cars like the Prius can explain Toyota’s popularity, but globally!

    Last September in this blog I wrote about how, through an unfortunate combination of lack of foresight, lack of consistent committment to quality, and HealthCosts and Pensions of retirees, U.S. automakers are losing the fight even before it started! This was my entry on The Cost of Lip Service.

    The more exciting lesson here is not for U.S. or Korean or other automakers but the possibilities for continuous process improvement in Shared Services Centers (Captive BPOs) or BPO service providers or in-house processes.

    Toyota proved that you don’t need to chose any two of the three – Quality, Speed and Cost.

    Conventional wisdom always says – Quality, Speed and Cost – Choose any two, This meant that if you chose  Quality and Speed, your costs will go up. If you chose Quality and Cost, you will compromise on speed of execution.

    Over a 40 year period, Toyota has relentlessly cut costs, improved speed of execution and at the same time, has been fanatic about quality. In fact, a deep study of the Toyota Production System shows you how, by concentrating on Speed and Cost, and finding the most efficient, effective way of doing things, you can automatically increase quality.

    This is what I wrote about in my entry last year – New Role Model for Services – Toyota!

    Of course, Services are very different from Manufacturing in that services are more a human-machine-human kind of activity than manufacturing which is more of a human-machine-machine kind of activity.

    However the same promises of squeezing out inefficiences and ineffectiveness exist in services! There is no reason a Mortgage application should take 3 weeks to be processed. Services should ask the same question that manufacturing did. If a Toyota production stamping die used to take 3 days to set up, they asked the question – why can’t we do it in 3 minutes? Over decades, with continuous process improvement they achieved those kinds of results.

    The same potential is available for Services also. A 3 week mortgage application could be squeezed into 3 days if companies want to do it!

    Services by being faster could provide better quality results at lower costs simply because your resources are more things, driving down costs. Effectiveness measures can always make sure that faster services do not compromise on quality measures like customer satisfaction. You have same potential of having all  three, Quality, Speed and Costs! If you want to drill down more on how the Toyota Production System can be translated in Services, you can take a look at my presentation – Quality, Speed, Cost – Why Choose Two if you can choose all Three! at the Business Process Innovation Summit 2006.

    Toyota is a great model, especially for services! And the payoffs could be just as big, whether services are in-house, outsourced or offshored. When service providers and buyers look beyond just cost savings, the great promise of improvement is just waiting to be harvested! The payoffs can be pretty big considering 30 to 80 % of Operating Expenses (depending upon Vertical)  in any company is used in Business Processes! Considering companies in many verticals make about 10% or so in profits, if you can effect even a 20% improvement in business processes, you could double profits!


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