Over the next decade, Baron and Hannan kept close tabs on which start-ups thrived and which ones stumbled. About half the firms they studied remained in business for at least a decade; some became the most successful companies in the world. Baron and Hannan’s goal was to see if particular corporate cultures were more likely to correlate with success. They were unprepared, however, for how dramatically the impact of culture came through. “Even in the fast-paced world of high-tech entrepreneurship in Silicon Valley, founders’ employment models exert powerful and enduring effects on how their companies evolve and perform,” the researchers wrote in 2002 in the journal California Management Review. The enormous impact of cultural decisions “is evident even after taking account of numerous other factors that might be expected to affect the success or failure of young technology ventures, such as company age, size, access to venture capital, changes in senior leadership, and the economic environment.”
Just as Baron and Hannan had suspected, the star model produced some of the study’s biggest winners. As it turned out, putting all the smartest people in the same room could yield vast influence and wealth. But, unexpectedly, star firms also failed in record numbers. As a group, they were less likely to make it to an IPO than any other category, and they were often beset by internal rivalries. As anyone who has ever worked in such a company knows, infighting is often more vicious inside a star-focused firm, because everyone wants to be the star.
In fact, when Baron and Hannan looked at their data, they found the only culture that was a consistent winner were the commitment firms. Hands down, a commitment culture outperformed every other type of management style in almost every meaningful way. “Not one of the commitment firms we studied failed,” said Baron. “None of them, which is amazing in its own right. But they were also the fastest companies to go public, had the highest profitability ratios, and tended to be leaner, with fewer middle managers, because when you choose employees slowly, you have time to find people who excel at self-direction.” Employees in commitment firms wasted less time on internal rivalries because everyone was committed to the company, rather than to personal agendas. Commitment companies tended to know their customers better than other kinds of firms, and as a result could detect shifts in the market faster. “Despite its being widely pronounced dead in Silicon Valley in the mid-1990s, the Commitment model fares very well in our sample,” the researchers wrote.
“Venture capitalists love star firms because when you’re investing in a portfolio of companies, all you need are a few huge successes,” Baron told me. “But if you’re an entrepreneur and you’re betting on just one company, then the data says you’re much better off with a commitment-focused culture.”
One of the reasons commitment cultures were successful, it seemed, was because a sense of trust emerged among workers, managers, and customers that enticed everyone to work harder and stick together through the setbacks that are inevitable in any industry. Most commitment companies avoided layoffs unless there was no other alternative. They invested heavily in training. There were higher levels of teamwork and psychological safety. Commitment companies might not have had lavish cafeterias, but they offered generous maternity leaves, daycare programs, and work-from-home options. These initiatives were not immediately cost-effective, but commitment firms valued making employees happy over quick profits—and as a result, workers tended to turn down higher-paying jobs at rival firms. And customers stayed loyal because they had relationships that stretched over years. Commitment firms dodged one of the business world’s biggest hidden costs: the profits that are lost when an employee takes clients or insights to a competitor.
“Good employees are always the hardest asset to find,” said Baron. “When everyone wants to stick around, you’ve got a pretty strong advantage.”
The first thing Rick Madrid did upon returning to California was tell everyone what he had seen in Japan. He talked about the hanging cables, called “andon cords,” and about how managers took commands from workers instead of the other way around. He described watching assembly lines stop because some mechanic decided he needed more time to rebolt a door. He declared that everything at the Fremont plant was about to change now that NUMMI was in charge.
His friends were skeptical. They had heard this story before. GM had often said the company valued employee input—until employees began recommending changes that management didn’t want to hear. In the weeks before the NUMMI plant opened, the factory’s workers made sure their union memberships were up-to-date and held meetings to discuss tactics for fighting management, if it came to that. They voted to create a “NUMMI work-stoppage fund” to pay for workers’ expenses if they went on strike. They demanded—and NUMMI immediately agreed to provide—a formal system for filing grievances.
Then, NUMMI’s management announced the company’s layoff policy. “New United Motor Manufacturing, Inc., recognizes that job security is essential to an employee’s well-being,” read the company’s agreement with the United Auto Workers. “The Company agrees that it will not lay off employees unless compelled to do so by severe economic conditions that threaten the long-term viability of the Company.” NUMMI promised it would cut executive pay rather than fire workers and train people to sweep floors, repair machines, or serve meals in the cafeteria to preserve their jobs. Every employee complaint and suggestion, no matter how far-fetched or expensive, would be implemented, or a response would be publicly posted explaining why not. Every team was given authority to change their stations’ layouts and work flow. Anyone, at any time, could stop the assembly line if they saw a problem. No American car company had ever made so public a promise to avoid layoffs and respond to worker complaints.
Skeptical workers said that such pledges were easy to make when the plant wasn’t even operating yet, but they grudgingly agreed to play along. The factory began producing Chevy Novas on December 10, 1984.
Rick Madrid was assigned to a team that stamped out hoods and doors from giant sheets of steel. It was immediately clear to him that things were different. People who once sought trysts in the storage room kept their hands to themselves. There was no obvious drinking on the job. The RV hadn’t returned to the parking lot. People were scared to try anything. They didn’t want to push their luck. This hesitancy, however, also had less useful consequences. No one was pulling andon cords or making suggestions because no one was eager to cost the factory $15,000 a minute. No one was sure it wouldn’t cost them their job.
A month after the plant reopened, Tetsuro Toyoda—NUMMI’s president, whose grandfather had founded Toyota in 1933—walked the Fremont floor. He saw an employee struggling to install a taillight that was wedged into a car frame at an odd angle. Toyoda approached the worker and, reading the name stitched on his uniform, said, “Joe, please pull the cord.”
“I can fix this, sir,” Joe said.
“Joe, please pull the cord.”
Joe had never pulled an andon cord. No one in his area had. Since the plant had opened, there had been only a few cord pulls, and one of those had been an accident.
“Sir, I can fix this,” Joe said, working furiously to pop the taillight into place.