The Toyota Way

Game Theory & Employee Engagement


Game Theory Process improvement Japan

The theory of games is a theory of decision making.

Let`s take a look at some key employee engagement issues. We`ll use changes to The Toyota Way in the last decade as our case study. The questions to consider:
1. How do employees decide to engage in the process?
2. How can a company lead employees to decide to engage in the process?

A brief review of game theory & its business applications
In a Fortune magazine article, John McDonald (1970) wrote about executive decision making. He noted that game theory is “uniquely qualified to make sense of the forces at work.”(Morton Davis, Game Theory)

Your decisions are linked to your goals - if you know the consequences of your choices, the solution is easy. Decide where you want to be and chose the path that takes you there.

When it comes to employee engagement, it is management`s responsibility to present a kaizen path that benefits both the company and the employee. Make it easy for employees to engage.

People management and employee motivation are complex issues. By viewing them as a game, you can translate the intuitive insights of an observer into a quantitative model. This allows you to gain an understanding that can often be far from obvious.

What is so special about Game Theory?
Simply this: In a game there are others present who are making decisions according to what they want, and they must be taken into account. In a game, each player must decide if his or her goals match or clash with the goals of others and decide whether to cooperate or not. It is this blending of players` mutual and conflicting interests that make game theory so relevant to management issues. (Morton Davis, Game Theory)


How Toyota`s CCC21 Policy Damaged The Spirit of Kaizen & The Toyota Way

In 2000, Toyota initiated an aggressive cost saving strategy known as Construction of Cost Competitiveness in the 21st Century (CCC21).

Cost reduction at all costs
CCC21 was credited as having saved Toyota 1,000,000,000,000 yen between 2000 and 2003. (Jon Miller, By 2007, Toyota became the world`s biggest car maker. (

Sounds great, right? Well, let`s step back a bit and take a look at what happened: CCC21 required a severe 30% cost reduction all the way down to the smallest supplier. "If we didn't comply with the request they might take away business. We had no choice but to achieve it," The president of a small supplier was quoted as saying. He was forced to release 20% of his workforce that year. (Chunichi Newspaper, May 11, 2008) Some have observed that these aggressive cost cuts across the supply chain contributed to Toyota`s quality problems and record vehicle recalls starting in 2004. (

In a simple game theory matrix, it is intuitively easy to see how the drastic measures taken to comply with CCC21 would interfere with the spirit of kaizen and employee engagement; therefore, quality right through Toyota`s supply chain.

What game was being played?

Game Theory CCC21 Process Improvement Japan

Toyota`s extreme cost reduction strategy was bound to create turmoil and engagement issues. A leader of a supplier in Nagoya stated, "All that connects us with Toyota is money. Any sense that I am 'serving Toyota' is gone." The article states that kaizen and cost reduction have become mechanistic, and only a measurement of "efficiency" where in fact the original founders' intent for kaizen was to build a love for manufacturing and develop human creativity. (Chunichi Newspaper, May 14, 2008) In February 2010, Mr. Akio Toyoda stated to the American people, “I am taking the company back to basics. Across Toyota, we are putting our customers, and the values on which our company was founded, front and center...When my grandfather brought Toyota into the auto business in 1937, he created a set of principles that has always guided how we operate. We call it the Toyota Way, and its pillars are "respect for people" and "continuous improvement." I believe in these core principles.” (

It seems Toyota`s game plan has changed & The Toyota Way has been revived.

CASE STUDY 2: How not engaging management can have dire consequences, click here.

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