Managing Corporate Culture: Nummi

Executive summary

In 2010, the plant in Fremont, California (owned by Toyota Motor Co. and General Motors Co.) called New United Motor Manufacturing Inc. (NUMMI) was shut down. Despite its closure, NUMMI had been a successful manufacturing plant for over twenty years with high productivity, quality, and satisfied workers who were reliable in terms of attendance. This report will examine the transformation that took place under NUMMI’s leadership and highlight three key factors that contributed to this successful change.

• Creating a new production system
• Developing a new management system
• Reformation of corporate culture.

Lastly, the report will pinpoint the recommendations that should have been put into practice to ensure the plant runs efficiently for at least another two decades or more.

Analysis of Situation

GM’s Fremont plant in California had a workforce of over 7,200 employees and was closed in 1982. The plant had gained a notorious reputation for its low productivity, poor quality automobiles, a high number of grievances filed (ranging from 5,000 to 7,000), worker absenteeism of over 20%, and even instances of sabotage.

There were multiple occurrences of breaking production and safety rules, as well as other cycle time errors at the plant. Toyota Motors encountered a similar situation when they needed to manufacture vehicles in the United States. In order to address this problem, New United Motor Manufacturing Inc. (NUMMI) was established in 1984 as a joint venture between Toyota and General Motors. Each company had different objectives: GM aimed to reopen the Fremont plant and gain expertise in producing a profitable compact car, while Toyota sought assistance from GM to establish a production line in the United States.

Despite its primary goal being the acquisition of knowledge, the collaboration between GM and Toyota, known as NUMMI, proved advantageous for both companies. GM had the chance to familiarize itself with Toyota’s Production System (TPS), while Toyota gained valuable perspectives on collaborating with American workers and suppliers. Within a single year, the Fremont plant transformed from GM’s least prosperous facility into its most prosperous one. Not only did productivity and quality experience significant enhancements, but worker satisfaction and attendance also reached extraordinary levels. It is crucial to emphasize that these notable accomplishments were attained by the identical group of workers.

The main factors that contributed to this impressive transformation were identified as follows: the implementation of new production and management systems and the reformation of corporate culture.

Strategic Alternatives and Selected Strategy

Both companies had strategic alternatives. Toyota could have chosen to go alone, which would have been quicker and simpler. On the other hand, General Motors could have ignored the refurbished plant completely. Nevertheless, the joint effort resulted in the success story of NUMMI. The only option considered by the leadership of the Fremont plant in 1982 was to shut down the unionized plant that was spiraling out of control.

Although the initial employees of the new Japanese executives were the same individuals who were in a union before, they implemented a different hiring process to address the system’s issues that caused poor performance. The updated hiring process involved a three-day selection procedure consisting of written tests, interviews, production simulations, individual assessments, and group discussions. These methods were implemented to assess the candidates’ suitability for the new strategic approach of NUMMI, which emphasized learning and highlighted teamwork as an essential skill.

Newly hired team members participated in a four-day training session led by team members and managers. The training covered various topics such as the team concept, the Toyota production system, quality principles, attendance requirements, safety policies, labor management philosophies, cultural diversity, and the competitive situation in the automobile industry (Stanford – Graduate School of Business, 1998). NUMMI was established as a team-oriented organization with a strong sense of interdependence and unity. Unlike the old GM plant, which had a six-level hierarchy, NUMMI only had three levels of management.

The first level of management was represented by a team leader with various roles: coordinating teamwork, training team members, and filling in if needed. The second-level management not only had these tasks but also handled budgeting and planning. They were expected to address and resolve problems at the lowest level possible. To ensure fairness and efficiency, NUMMI introduced a new job structure that reduced job classifications from 81 to 3 while maintaining the same wage rate.

The reward system that was developed also aimed to create equality in rewards among employees. For example, team leaders received only a 50-cent hourly premium, and each team was given a small social budget. The company supported its goals through a continual training system and information sharing among all team members. By implementing the stop-the-line system, management was able to empower employees by giving them responsibility for production and quality at the lowest level, down to the workers.

Toyota implemented a policy of “mutual trust” or no-layoff policy, which fostered trust between the company and employees. This policy ensured that workers accepted responsibility and took ownership of their jobs. Toyota also recognized the significance of providing employees with the necessary resources to perform their jobs effectively. NUMMI, a plant associated with Toyota, believed in creating a culture of fairness, empowerment, and learning. As a result, the plant was able to implement approximately 8,000 improvements suggested by workers in 1991.

Implementation, Recommendations and Conclusion

NUMMI provided a valuable learning experience for both General Motors and Toyota. It successfully transformed a dysfunctional plant into a model manufacturing facility using the same workers to produce cars for both companies. This transformation was achieved through the implementation of new production and management systems, as well as a reformulation of corporate culture. Despite this success, the companies failed to fully capitalize on the lessons learned at NUMMI. According to Kotter (2002), organizations must follow eight steps to effectively implement positive change:

• Step 1 – increasing urgency
• Step 2 – building the guiding team
• Step 3 – getting the vision right
• Step 4 – communicating for buy-in
• Step 5 – empowering
• Step 6 – creating short-term wins
• Step 7 – making a vision into reality
• Step 8 – sticking a change

When it comes to NUMMI, did they truly follow steps 7 and 8? Although there was a significant improvement in quality, the quantity was initially low due to conflicts with the union and ergonomic issues that arose in the plant. In addition, the inability to effectively communicate knowledge and vision to new employees and the loss of the Toyota Production System’s principles were factors that led to a subsequent disaster.

Instead of implementing the NUMMI experience nationwide at the time, General Motors (GM) was focused on buying new companies, while Toyota was actively opening new plants. It took GM years to begin adopting the Japanese system in its plants, facing significant resistance without Toyota as a partner. Unfortunately, this delay caused GM to lose valuable time. Ultimately, the recessions of 1991 and 2008 led to GM’s bankruptcy and withdrawal. Consequently, in 2009, Toyota took over the operations of NUMMI alone. As a result, on April 1, 2010, New United Motor Manufacturing Inc., a unique joint venture between Toyota and GM in Fremont, California, ceased operations. This closure left 4,600 workers jobless and impacted around 20,000 more employees, including those from direct suppliers.

References

1. John Shook. 2010. How to Change a Culture: Lessons From NUMMI.
2. John P. Kotter. 2002. The Heart of Change.
3. New United Motors Manufacturing, Inc. (NUMMI). Retrieved May 8, 2012 from: http://gsbapps. stanford. edu/cases/documents/HR11. pdf
4. Closing NUMMI Is Easy For Toyota. Retrieved May 8, 2012 from: http://www. orbes. com/2009/07/24/nummi-toyota-gm-markets-autos-hybrid. html
5. NUMMI Plant Closure Ends Toyota-GM Venture. Retrieved May 8, 2012 from: http://www. npr. org/templates/story/story. php? storyId=125430405
6. This American Life From WBEZ. Retrieved May 8, 2012 from: http://www. thisamericanlife. org/radio-archives/episode/403/transcript
7. Robert B. Austenfeld, Jr. NUMMI—The Great Experiment. Retrieved May 8, 2012 from: http://www. agileway. com. br/wp-content/uploads/2009/10/nummi-austenfeld-agileway. com. br. pdf