ROT248

From Conflict to Balance:

Mastering
Creative Tension
Innovative thinkers hold the tension between conflicting goals
in their minds and use it as creative fuel.
By Matthew May

INNOVATION IS OFTEN of an ability to harmonize oppos- procurement operation essentially dedicated to Japan, to a global
ing tensions. Like the pressure to avoid failure and the need to supply chain sourcing parts from 600 suppliers around
take risks; or the demands of getting results quickly and the free- the world. Launch of the second of two major parts-stocking
dom to search for ‘the best way’. Unfortunately, all-too-often in hubs was coming up in 18 months. A change in senior manage-
business, the artful balancing of opposing tensions goes by the ment was made, which added another dimension to an organiza-
wayside, and compromises are made that, in the end, serve to tion in transition.
sub-optimize to create value. Toyota appointed Jane Beseda, a successful executive from
During my tenure at Toyota, I learned about the pursuit of Toyota Financial Services, to take NAPO to the next level of per-
kyosei, or ‘balanced harmony’, as a means of mastering the cre- formance. Upon her arrival, she saw a good parts operation able
ative tensions that arise from an approach that sets daunting to 98 per cent of its dealer orders within 24 hours — no easy
challenges that are in direct competition or with each feat with 20 million Toyotas on the road at the time. But she also
other in order to drive new thinking. saw a sophisticated supply chain with rising costs and increasing-
Much has been written about ‘stretch goals’, and their abil- ly high customer requirements in spite of the new facilities and
ity to spur creativity. Many times, however, managers set what added capability meant to do just the opposite.
appear to be good stretch goals, only to discover that they do not As she made her way across the country visiting each re-
produce the hoped-for innovative thinking. One common reason gional parts operation, Beseda saw warehouse capacity being
for this is that the goals were in fact not enough of a stretch. strained by over three months’ supply of inventory worth over
When I ask executives how they ‘stretch’, I commonly $350 million, made up of over 200,000 part numbers for nearly
hear ‘about a to ten per cent increment in improvement’. 30 Toyota models. She saw the of global coverage through
The fact is, that is not enough, because it often just translates to local production—procuring and supplying global distributors in
people working harder and longer. A 25 per cent improvement radically markets with widely varying regulations was
— while audacious and arduous — can rarely be met simply by to manage well.
sweating more: it literally demands new thinking and rethinking. She concluded that NAPO was an enormously complex or-
Many executives are afraid to set such a high bar, for fear ganization run by tremendously talented people, but that they
that some other area of their business will be compromised. weren’t working together as well as they could. She set three
While that is a very real danger, there is a technique that prevents daunting challenges:
compromise: intentional goal which I refer to as ‘dy- 1. $100 million in distribution cost savings;
namic tension’. Two cases cut from the annals of innovation at 2. $100 million of inventory removed from the supply
Toyota will illustrate how it works. chain; and
3. 50 per cent improvement in customer service (ratings
Too Many Moving Parts by dealers).
At the turn of the new millennium, Toyota’s service parts and ac-
cessories business was booming. But times weren’t all that good Beseda didn’t know much about the parts business; but she
at its North American Parts Organization (NAPO). It had just didn’t need to. She knew plenty about business, people and or-
come a expansion moving from a domestic ganizations. She knew how to manage and motivate, so she knew

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The more aggressive targets actually engaged people’s brains
in new ways and forced them to rethink and redesign processes.

the program would foster transformation by forcing collabora- ducing a luxury performance sedan that would beat the best lux-
tion, cooperation and communication across functional silos. ury sedans — BMW 735i and Mercedes 420SEL — across the board
The goals simply couldn’t be met otherwise. She also knew she in every measurable category: comfort, styling, performance,
couldn’t dictate solutions, and that a new structure and system handling, cabin noise, aerodynamics, weight, and fuel efficiency.
for planning was required, one that let the ideas spring up and
take root. Suzuki’s specific goals were every bit as ‘stretch’ as Beseda’s:
Beseda stunned her 80 or so senior managers by telling
them she wanted these goals met in three years. To her mind, this 1. Top speed of 155 miles per hour (735i and 420SEL topped
was the perfect stretch because it was enough time to move the out at under 140)
needle. Less than three years would have been entirely impos- 2. Fuel rating of 22.5 miles per gallon (735i and 420SEL
sible, and hence demotivating; more than three and the vision got less than 20)
would be too distant, and hence disengaging. She named her ef- 3. Cabin noise level of 58 decibels at 60 mph (735i and
fort, appropriately, Stretch Goals. The focus would be bilateral: 420SEL were over 60)
externally on customers, internally on costs. There would be no 4. Aerodynamic drag of 0.29 or less (735i and 420SEL
more business as usual. were over 0.32)
Among her senior staff, as cries of “Impossible!” rang out, 5. Curb weight 80 pounds less than the 3,880-pound
Beseda held firm, making it abundantly clear that there would 735i (which was lighter than the 420SEL)
be no compromise. Putting their heads together, the managers
arrived at ten key objectives that needed to be met in order to ac- Legend has it that the product engineering chief, Akira Taka-
complish the mission: hashi, told Suzuki to his face that he was out of his mind, refusing
1. Reduce inventory by 50 per cent to go along with the plan. Each of the goals was too high individu-
2. Decrease backorders by 50 per cent ally, but together? Impossible. Takahashi’s argument made sense:
3. Reduce packaging expenses by 50 per cent no Toyota car at the time could go faster than 110 mph except the
4. Reduce damage by 50 per cent Supra, which at its top end of 130 nearly became airborne. Su-
5. Increase throughput by 25 per cent zuki planted himself in Takahashi’s office, refusing to leave un-
6. Improve safety/decrease errors by 50 per cent til Takahashi agreed to try. To this day, Suzuki, now retired, will
7. Increase space utilization by 25 per cent smile and repeat: impossible.
8. Decrease landfill usage by 25 per cent Impossible. Out of your mind. These are the words of break-
9. Reduce freight costs by 25 per cent through; and they are fighting words when uttered to the right
10. Decrease lead time by 40 per cent people. That’s because the right people will hold on to the cre-
ative tension between clearly conflicting objectives. They will le-
These targets were audacious, to say the least. Such a high verage the scarcity of resources. They will reframe constraints to
bar had never been attempted by the division. But then some- be the very source of innovation. And they will find a way to get
thing amazing happened: the more aggressive targets actually the job done without compromising the ‘dramatic destination’.
engaged people’s brains in new ways and forced them to rethink The notion of a dramatic destination is an important one.
and redesign processes. Taking $100 million out of costs and inventory while simultane-
The cries of “Impossible!” were reminiscent of those uttered ously improving customer satisfaction in just three years (in the
some 15 years earlier by the nearly 5,000 designers and engineers case of NAPO) was a dramatic destination. Beating the best lux-
involved in then-president Eiji Toyoda’s plan to unseat BMW ury performance sedans on the planet when you’ve never built
and Mercedes from their firmly entrenched position at the top of one before — essentially building the best car in the world — was
the luxury automobile market in the United States. most certainly a dramatic destination.
Simply put, dramatic destinations demand different think-
Dramatic Destinations ing. But what both Jane Beseda and Ichiro Suzuki knew was that
In 1987, the chief engineer for the secret project that would be- dramatic destinations must be broken down into targets that
come the first Lexus, Ichiro Suzuki, issued the challenge of pro- people can own and focus on.

74 / Rotman Management Fall 2014

The Art of Conflict Recall Suzuki’s goals: beat the best in every measurable
Jane Beseda saw the ultimate mission of the NAPO Stretch Goals category: comfort, styling, performance, handling, cabin noise,
initiative as optimizing the entire supply chain. But attempting to aerodynamics, weight, and fuel efficiency.
do that simply by issuing some big, aggressive goals ignores the But…greater speed and acceleration conflicts directly with
nuances of the system, irrespective of how well-intentioned or fuel efficiency, noise, and weight, because higher speed and ac-
well-aligned they may be. There are inherent conflicts existing celeration requires a more powerful engine. A more powerful en-
between and among the various natural functions of any sup- gine is a bigger and heavier engine, and so it makes more noise
ply chain. The real beauty of Beseda’s strategy was in recogniz- and consumes more fuel. A smooth, quiet ride conflicts directly
ing those tensions, calling attention to them, and capitalizing on with lower weight and better handling at high speed. Heavy, non-
them to power new thinking and drive cross-group collaboration. performance-oriented cars with beefier insulation and a softer
The secret lies in a hidden dimension to how the goals were suspension provide the smoother, quieter ride. Refined styling
set. The ultimate mission of the initiative was to optimize the and high-speed stability conflict directly with aerodynamic drag;
entire supply chain, but inherent conflicts exist between and the more angled look of 1980s luxury cars provided greater sta-
among the various functions of any supply chain. The real art of bility because of the higher air friction. Suzuki demanded a V8
the strategy was in recognizing those tensions, calling attention engine with a 4-liter displacement, something unheard of in a
to them, and capitalizing on them to power new thinking and lightweight, fuel-efficient quiet luxury car.
drive collaboration. What both Beseda and Suzuki realized early on was that the
At first glance, the list of ten objectives seems like a simple artful balance of clearly-conflicting constraints often requires
master wish list. But take a second look. See if you can spot the fresh eyes, open minds, and a good dose of youthful, somewhat
tension points. Here’s a hint. Take a look at the first two targets, irreverent energy.
inventory and backorders. In most supply chains, these are op-
posite sides of the same coin: increase inventory, and backorders A Tale of Two 20-Somethings
drop; decrease it, and backorders generally rise. Knowing she needed a talented project manager to bring her as-
If you look back at all ten objectives, you’ll see that they are pirations to life, Beseda selected Thor Oxnard, a young execu-
really five pairs of conflicting goals. This simple graphic helps vi- tive in strategic planning who had made his mark back in Japan
sualize the pairings: at Toyota headquarters by successfully negotiating cross-man-
ufacturer automotive contracts for a joint partnership between
Inventory Packaging Throughput Space Freight Toyota and General Motors.
Reduction Expenses (+25%) Utilization Costs Thor’s first step was to set up a command central function to
(-50%) (-50%) v. (+25%) (-25%) manage the whole process, the Project Management Office. Thor
v. v. Errors/ v. v. made the PMO a key strategic move designed to provide central
Backorders Damage Safety Landfill Lead coordination and monitoring of progress toward the targets. The
(-50%) (-50%) (-50%) (-25%) Time next step was to move beyond concept. It was time for action, pri-
(-40%) oritization and measurement. The targets had to be data-driven
and verifiable. Savings had to drop to the bottom line. Soft num-
Beseda’s dramatic destination, broken down into aggressive bers wouldn’t work.
milemarkers, called for bold and creative solutions. The five Thor organized strategy sessions aimed at developing
pairs of conflicting targets could not be achieved simultaneous- high-level initiatives addressing each target. A project agenda
ly without compromise with anything less than truly innovative emerged, representing a unified approach. Suddenly, saving
thinking. $100 million in three years seemed doable.
The issues facing Lexus designers and engineers were even As the objectives were translated into real projects, teams
more conflicted and complex than those facing NAPO. Design- and deadlines, inspiration began to seep into the once-skeptical
ing a vehicle, though, is often an act of the very compromise senior management team, to the point that cries of “Impossible!”
Beseda had rejected. Interestingly, Ichiro Suzuki’s war cry was were replaced by chants of “$100 million; we can do it!” NAPO
naukatsu, which means ‘never compromise’. Vice President Fletcher Davidson even promised to do cart-

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What had been seen as contradictory
was reframed and seen as complementary.

wheels if the targets were met. Key performance indicators for One effective way to boost a car’s fuel efficiency is to reduce
each target were developed and agreed to. For example, damage its coefficient of drag, or aerodynamic friction. A good way to do
reduction would be measured as pieces per million shipped and that is to emulate the shape of a teardrop: you raise the rear deck
damage dollars as a percentage of sales. Baselines were set using and lower the front end. The problem was that in the late 1980s,
previous hyphen year results. luxury styling was all about lines and angles, which aren’t very
Several months into the Stretch Goals initiative, some prog- aerodynamic. Shackled by that mental model, the designers and
ress was being made. But something was missing. Changes were engineers simply hit an impasse.
still functional, siloed. The kinds of moves you’d hope to see in an The second challenge concerned the front-end design:
end-to-end transformation hadn’t been made, or even attempt- nothing about it satisfied Suzuki. He rejected sketch after sketch,
ed. Oxnard realized that the only way company-wide innovation stubborn in his belief that styling, comfort, and performance
would occur with enough impact to achieve the conflicting tar- could, and in this case must, coexist harmoniously in a car.
gets would be through the execution of cross-functional projects. Nicknamed ‘Dezi’, Akihiro Nagaya was just 25 when Su-
But project teams were struggling to coordinate work across zuki selected him to address these challenges. Suzuki had kept a
boundaries using the traditional departmental planning ap- watchful eye on the youngster, who in the four years before join-
proach. Oxnard needed a better mechanism. His solution: cre- ing the Lexus team had demonstrated a flair for bold ideas. Su-
ate mid-range plans using a Vertical-Horizontal-Vertical (V-H-V) zuki knew Dezi could breathe new life into the design team, all of
planning process, involving three steps: whose members were seasoned vets.
Dezi had a unique perspective on automobiles. Cars were, in
1. Vertical — each department would plan as it normally does his words, “moving sculpture.” It was exactly the kind of think-
within its functional silo; ing Suzuki was looking for in tackling the impossible constraints,
2. Horizontal — representatives from each department would and perspective needed to save the Lexus design. “I was asked
then gather to discuss and coordinate their plans in order to to create a front end that would save the ass of the [Lexus] LS,”
identify impacts on other areas and to request support; and Dezi would recall later. And save it he did. “Flow. I focused on
3. Vertical — local plans would be updated with new informa- flow,” he said. To him, the transitions between the various ele-
tion based on other department actions, then published and ments suggested that each of these seemingly contradictory no-
circulated. tions had to be seamless. The only alternative was to redefine
luxury styling. The sketch depicted flowing lines with smooth
Projects in pursuit of dramatic destinations demand this kind transitions, without lines and angles. As he tells it, when he saw
of flexibility in execution. It’s like sailing, in which you’re at the the sketch, Suzuki shouted, “This is it!”
mercy of changing winds and know you can’t go in a straight Dezi’s design helped get the team unstuck and opened the
line to get where you want to go. But what do you do when the floodgates of creativity to allow solutions to begin to emerge.
wind dies? What had been seen as contradictions began to be reframed and
Late in the game, the Lexus project stalled, and the project seen as complementary. Aesthetics and aerodynamics could
team got stuck on two key challenges. The first was fuel efficien- complement each other, for example, by fitting window glass and
cy, which gave the team the most difficulty. There was a very seri- door handles into the metal itself, producing a cleaner look and
ous practical consideration, which was avoiding the ‘gas guzzler better airflow. Sloping the rear window just enough to push air
tax’ of $1,000 per every car not rated at 22.5 miles per gallon or off the trunk and building a spoiler into the trunk lid to make the
better. There was also a point of pride: to that point, no luxury car back end more stable enabled a sleeker profile.
had avoided it, and Suzuki wanted Lexus to be the first to do so. In a reversal of conventional design wisdom, function began

76 / Rotman Management Fall 2014

 You need your team to believe that their reach can—
and should—exceed their grasp.

to follow form, and mechanical components were redesigned lighter, 17 miles per hour faster, got more than four more miles
in dramatic fashion. The engine was cast almost entirely from to the gallon, and retailed for $30,000 less than the BMW 735i.
aluminum — block, pistons, valve lifters, cam covers, everything It then took just two years for Lexus to displace Mercedes-Benz
— saving 120 pounds. The propeller shaft, originally in two parts and BMW, which had been entrenched for generations, as the
connected by an angled knuckle — like most rear-wheel-drive top-selling luxury import nameplate in America.
cars at the time — was replaced by a perfectly straight one, en- Soon after, upon tearing down two LS400s given to General
abling a nearly silent cabin. Motors headquarters by a southern California auto dealer,
Cadillac engineers in Detroit concluded that the Lexus car “could
Kyosei: Balanced Harmony not possibly be built.”
The V-H-V structure changed the NAPO culture. At one level, the
organization became more adept at planning — listening to each In closing
other, communicating, respecting other ideas, and developing The examples of NAPO and Lexus illustrate why, as a manager,
much more cohesive teams. At another level, NAPO started hav- you need your team to believe that their reach can — and should
ing fun. V-H-V meetings often ended in laughter, demonstrating — exceed their grasp. By intentionally inducing a sense of imbal-
camaraderie. Year-end celebrations were held with all associates ance, you can spur creativity and innovation. That’s because in-
at all locations to present achievements, with managers serving novative thinkers thrive on seemingly impossible targets. Hold-
breakfast in chef hats. The original tension had been replaced by ing the tension between conflicting goals in their minds, they use
a balanced harmony. Kyosei. it as creative fuel. And in today’s world there are few things more
The scene three years after Jane Beseda’s Stretch Goals pro- powerful than that.
nouncement was euphoric: a hotel conference room in Southern
California filled to capacity, with an announcer’s voice saying
over the PA: “Three years ago NAPO was given a challenge they
said couldn’t be done.” Lights flashed as Beseda and her lead-
ership team ran through the crowd in true pro basketball fash-
ion. The crowd was chanting, “Fletcher! Fletcher!” Davidson
prepared to perform his promised cartwheel. Pink Floyd’s
“Money” was booming as Beseda pulled a cord to un-
furl a banner reading “Thanks a $100 million” and play
money bills floated down like confetti. On each was
Davidson doing a cartwheel. Not all of the stretch goals were
met, but the team came close enough: $100 million in cost sav-
ings, $90 million taken out of inventory, and a 40 per cent im-
provement in customer satisfaction.
When the Lexus LS400 made its debut on September 1,
1989, it stunned the automotive world and set a new luxury stan-
dard. It was by all objective measures the best car the world had Matthew May is the founder of Edit Innovation and
ever seen. The facts made history: in every category rated by Car the author of four books, most recently The Laws of
Subtraction: 6 Simple Rules for Winning in the Age
and Driver, the LS400 trumped the BMW 735i and Mercedes
of Excess Everything (McGraw Hill, 2012).
420SEL. The Lexus LS400 was five decibels quieter, 120 pounds

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