Madrid’s trainers explained that the Toyota Production System—which in the United States would become known as “lean manufacturing”—relied on pushing decision making to the lowest possible level. Workers on the assembly line were the ones who saw problems first. They were closest to the glitches that were inevitable in any manufacturing process. So it only made sense to give them the greatest authority in finding solutions.
“Every person in an organization has the right to be the company’s top expert at something,” John Shook, who trained Madrid as one of Toyota’s first Western employees, told me. “If I’m attaching mufflers or I’m a receptionist or a janitor, I know more about exhaust systems or receiving people or cleaning offices than anyone else, and it’s incredibly wasteful if a company can’t take advantage of that knowledge. Toyota hates waste. The system was built to exploit everyone’s expertise.”
When Toyota had first proposed this management philosophy to General Motors, the Americans literally laughed at their na?veté. Maybe that approach works in Japan, they said, but it would fail in California. Workers at the Fremont plant didn’t care about contributing expertise. What they cared about was doing as little work as possible.
“But the only way we would agree to the partnership was if GM promised to give this a try,” said Shook. “Our basic philosophy was that no one goes to work wanting to suck. If you put people in a position to succeed, they will.
“What we didn’t say was that if we couldn’t figure out how to export the Toyota Production System, we were screwed,” Shook said. “It’s the culture that makes Toyota successful, not hanging cords or prototyping tools. If we couldn’t export a culture of trust, we had no other ideas. So we sent everyone to America and prayed it would work.”
In 1994, two business school professors at Stanford began studying how, exactly, one creates an atmosphere of trust within a company. For years, the professors—James Baron and Michael Hannan—had been teaching students that a firm’s culture mattered as much as its strategy. The way a business treats workers, they said, was critical to its success. In particular, they argued that within most companies—no matter how great the product or loyal the customers—things would eventually fall apart unless employees trusted one another.
Then, each year, a few students would ask for evidence that supported those claims.
The truth was, Baron and Hannan believed their assertions were true, but they didn’t have much data to back them up. Both men were trained as sociologists and could point to studies showing the importance of culture in making employees happy or recruiting new workers or encouraging a healthy work-life balance. But there were few papers showing how a company’s culture impacted profitability. So in 1994, they embarked on a multiyear project to see if they could prove their assertion right.
First, though, they needed to find an industry that had lots of new companies they could track over time. It occurred to them that the flurry of technology start-ups appearing in Silicon Valley might provide the perfect sample. At the time, the Internet was in its infancy. Most Americans thought @ was something to ignore on a keyboard. Google was still just a number spelled “googol.”
“We weren’t inherently interested in tech and we had no idea the companies we were studying would become big deals,” said Baron, who now teaches at Yale. “We just needed start-ups to study, and there were tech companies getting founded nearby and so every morning, we would buy the San Jose Mercury News and go through each page, and whenever a young company was mentioned, we would put our team into pursuit to find a phone number or mailing address, and then send someone to see if the CEO would answer a questionnaire.” Over time, as they put it in a study they later wrote, “without realizing it when we started our study in 1994–1995, we assembled the most comprehensive database to date on the histories, structures, and HR practices of high-tech companies in Silicon Valley, just as the region was about to witness an economic and technological boom of historic proportions.” The project ended up taking fifteen years and examining close to two hundred firms.
Their surveys looked at almost every variable that might influence a start-up’s culture, including how employees were recruited, how applicants were interviewed, how much people were paid, and which workers executives decided to promote or fire. They watched college dropouts become billionaires and, in other cases, high-flying executives crash and burn.
Eventually, they collected enough data to conclude that most companies had cultures that fell into one of five categories. One was a culture they referred to as the “star” model. At these firms, executives hired from elite universities or other successful companies and gave employees huge amounts of autonomy. Offices had fancy cafeterias and lavish perks. Venture capitalists loved star model companies because giving money to the A-Team, conventional wisdom held, was always the safest bet.
The second category was the “engineering” model. Inside firms with engineering cultures, there weren’t many individual stars, but engineers, as a group, held the most sway. An engineering mindset prevailed in solving problems or approaching hiring decisions. “This is your stereotypical Silicon Valley start-up, with a bunch of anonymous programmers drinking Mountain Dew at their computers,” said Baron. “They’re young and hungry and might be the next generation of stars once they prove themselves, but right now, they’re focused on solving technical problems.” Engineering-focused cultures are powerful because they allow firms to grow quickly. “Think of how fast Facebook expanded,” said Baron. “When everyone comes from a similar background and mindset, you can rely on common social norms to keep everyone on the same path.”
The third and fourth categories of companies included those firms built around “bureaucracies” and those constructed as “autocracies.” In the bureaucratic model, cultures emerged through thick ranks of middle managers. Executives wrote extensive job descriptions, organizational charts, and employee handbooks. Everything was spelled out, and there were rituals, such as weekly all-hands meetings, that regularly communicated the firm’s values to its workers. An autocratic culture is similar, except that all the rules, job descriptions, and organizational charts ultimately point to the desires and goals of one person, usually the founder or CEO. “One autocratic chief executive told us that his cultural model was, ‘You work. You do what I say. You get paid,’?” Baron said.
The final category was known as the “commitment” model, and it was a throwback to an age when people happily worked for one company their entire life. “Commitment CEOs say things like, ‘I want to build the kind of company where people only leave when they retire or die,’?” said Baron. “That doesn’t necessarily mean the company is stodgy, but it does imply a set of values that might prioritize slow and steady growth.” Some Silicon Valley executives told Baron they saw commitment firms as outdated, remnants of a corporate paternalism that had undermined industries such as American manufacturing. Commitment companies were more hesitant to lay people off. They often hired HR professionals when other start-ups were using precious dollars to recruit engineers or salespeople. “Commitment CEOs believe that getting the culture right is more important at first than designing the best product,” Baron said.