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What it Takes to Leapfrog from Laggard to Leader

After the bleak start to 2017 for apparel brands and retailers, one by one these companies announced a steady stream of elaborate turnaround plans, with detailed steps designed to improve their organizations. While some of these plans have already resulted in positive momentum, Ananth Raman says ultimately, whether these companies win or lose will be determined more by how they execute than how well crafted their initial strategy was.

The UPS Foundation professor of business logistics at Harvard Business School led a lively, interactive discussion at the American Apparel and Footwear Association’s annual Executive Summit in Washington, D.C. on Wednesday, which used the car industry to illustrate his point that “excellent execution of an OK strategy will beat a mediocre execution of an excellent strategy.”

Though Toyota has had major missteps recently, there was a time when the company achieved what seemed like the impossible.

Raman’s research showed that in 1985, Toyota was just a blip on the map compared to car giants like GM, which was seven times the size of the Japanese company, while Ford was three times its size and Chrysler outdid Toyota by double when it came to size. How does a company close a gap that vast? As it turns out, the solution was deceptively simple and even so, it took its competitors decades to fully realize what happened.

The company’s secret weapon turned out to be its employees. By empowering them, Toyota was able to leapfrog the other carmakers with a market cap that was five times the next five combined by 2007, Raman said. The solution? Providing factory workers with a tool to alert management to potential product quality issues the moment they saw them. The so-called Andon Cord is essentially a rope that employees pulled if they spotted a potential issue. Ultimately, the cords were pulled between three and four times a shift at any given plant.

It seems counterintuitive that stopping the line constantly, plus a slew of inspections each hour, would boost productivity let alone sales, but that’s exactly what happened. That rope system, Raman said, helped lead Toyota to achieve a $150 billion market cap dwarfing its competitors.

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Seeing these results, the other auto companies immediately followed suit—except they didn’t.

“If rope is worth $150 billion, wouldn’t you expect everyone to buy rope?” Raman posed.

The audience provided a variety of theories as to why rope wasn’t the most prized commodity in the car industry—and many of their explanations also revealed the faulty logic and poor leadership they said are holding some apparel businesses back today.

One thought was that maybe those in the C-suite felt they were smarter than their employees, or as Raman put it, “They underestimated the foot soldiers. This is the general who thinks he or she wins the war all by him or herself.”

Another cause? The other companies were so busy looking for a complicated, high-tech solution to their sales issues that they weren’t able to see the simple fix right in front of them. “We want that big idea,” Raman said. “Give me an M&A or electric cars.”

Still another attendee suggested the rope alone wasn’t enough. For the companies that did eventually install their versions of the Andon Cord, it didn’t work out as well for one reason: culture.

Those other automakers also needed to adopt a new mindset, one that allowed them to view the alerts from the floor as a step toward building a better company. Otherwise, they’d see it as a nuisance that was slowing down the line, in which case their employees would be wary of ever pulling the rope.

Culture, it turns out, was an invaluable part of what made the Andon Cord work. And Toyota was so sure of that fact that it would willingly allow outsiders in to see its operations. On one such visit, Raman asked why Toyota would allow its secrets to be revealed, to which he said the plant manager told him, “You can’t copy our performance unless you copy what’s going on in our people’s heads.”

Though the Japanese automaker eventually lost its focus by prioritizing volume over safety and quality, the company’s heyday is an interesting case study for apparel and footwear executives in search of a way to grab market share. Maybe, as Toyota found, the answer to accelerating sales can be found in focusing on executing simple solutions.