Toyota in Trouble (the quick and dirty version)

What happened at Toyota? Mr. Toyoda himself summed it up nicely, as the NYT recently reported.  In a nutshell, Toyota thrived when it focused on improvement. When that focus shifted to growth the company ran into serious trouble:

In his prepared testimony, released on Tuesday, Mr. Toyoda said he took personal responsibility for the situation. In the past, he said, the company’s priorities were safety and quality, and sales came last.

But as Toyota grew to become the world’s biggest carmaker, “these priorities became confused, and we were not able to stop, think and make improvements as much as possible,” Mr. Toyoda said.

Toyota earned its place as the most celebrated operations story of the past few decades because of its relentless commitment to surfacing problems.  The entire organization was focused on the same worthy goals of improving its cars and improving the way its cars were built.  This improvement philosophy reached beyond the factory floor and included strengthening relationships with suppliers and partners.  Toyota managers famously helped suppliers, for example, to lower their own costs by using principles of the Toyota Production System (TPS).  Growth followed naturally.

And then the company’s goal became selling more cars than anyone else, and the metric it glorified was sales growth.  This may seem like a small shift — from growth as an outcome of improvement to growth as a central goal — but the moral of the Toyota story is that this pivot can be devastating.  Improvement is a powerful, worthy mission for an organization’s stakeholders.  Growth can be (and usually is) associated with compromises, with winning the game at any cost.  Toyota paid a cultural price for this shift.  For example, instead of helping its suppliers reduce costs through operational improvement, Toyota began to mandate lower prices and left its suppliers to figure out the rest.  These choices created an environment where cutting corners both inside and outside the organization became likely.

I want the spotlight to linger on this story for a long time.  There are important lessons here beyond the fall of a once-mighty competitor.  The most important one may be that a company’s purpose matters, in ways that go beyond hard-to-measure outcomes like employee satisfaction and  customer loyalty.  Purpose infiltrates an entire organization, all the way down to the manufacturing of a faulty accelerator. My deep hope is that Toyota shows us both the cost of getting it wrong and the path back to getting it right.  Frankly, I’m optimistic.  The tradeoffs are now seared into the souls of every single manager at Toyota.  The company has a powerful incentive to return to its roots as a role model for improvement with growth as a manifestation.

9 Responses to Toyota in Trouble (the quick and dirty version)

  1. Citizen Pete says:

    Nice one. “Purpose infiltrates an entire organization” – now that’s a well summed up key thought which I enjoyed reading.

  2. Lakia says:

    Thanks for the post..

  3. Phil Tyler says:

    The new toyota commercials make me tear up.

  4. ShrirangK says:

    I second Citizen Pete

  5. Great post – enormously resonant with my own experience of a variety of large (and not-so-large) corporations, some of which had a ‘purpose’ and some of which were simply focused on the bottom line. No prizes for guessing which had longevity and which either came a sizeable cropper, or had to reinvent themselves (and identify and instil a ‘purpose’.)

    As an aside – I think there may be a temptation to see the need for a company to have a ‘purpose’ (or vision, or intent, or mission, or corporate religion – whatever you care to call it) as somehow being a function of today’s New Age of business (where people – staff and stakeholders – come first) which is often attributed to the rise and rise of the social media phenomenon.

    The Toyota situation – as excellently and succinctly described here – gives the lie to this. Being a people business – getting your people on board with the company’s purpose and thereby giving them motivation and loyalty – has always been the hallmark of a quality operation. One that will go from strength to strength – until it forgets, or ignores, its purpose.

  6. […] – here’s a piece that I think is splendid. It’s from a blog called Decision to Lead – Expanding the Practice of […]

  7. Dave Philpott says:

    i have first hand knowlege of this comment “Toyota began to mandate lower prices and left its suppliers to figure out the rest. These choices created an environment where cutting corners both inside and outside the organization became likely.”
    Except it was gm and ford doing the demanding from dura automotive that built thier break cables and sent the company where i worked for 16 years to mexico.

  8. Jonathan Bowen says:

    The desire for rapid growth fed the problem, the lack of helping their suppliers was a problem, but I believe another central problem is the lack of good TPS operators and managers at Toyota in the US. Growth has far outpaced the training and abilities of top management and even worse, lower level management. Toyota is a learning organization and when managers and team members are not given the opportunity to learn and make mistakes, it is often the deadly mistakes that happen.

  9. MJ says:

    This is not just about Americanism of a company as it is a global phenomemum.

    Interestingly Toyota’s woes follow the introduction of the Toyota Way 2001. Has this, like many other companys become a set of values that have become almost religious to the point that they are talked about and not practiced.

    From poeple I have met at Toyota in my position, all over the world, they have become little religious zealots about the Toyota Way and have generally observed practices to the contrary to the so called values.

    Whenever you would speak to someone in Toyota about the general level of quality improving by other manufacturers, the response would often be “Oh but we have the Toyota Way” like it was some secret recipe for success. What I have seen is that it was a smoke screen for being oblivious.

    Over time, I have seen top management become ruder, more arrogant and deal with suppliers and competitors quite disrespectively, something you did not see in the 1990’s as it had steady growth.

    Quite a few of the western countries other than the US have not fared well. Look at the Australian offshoot, once massively dominant in the industry, was not much effected by the recalls. The country is well placed for growth economically, and Toyota has had spectacular loss of market share, and was caught up in a devastating social media disaster.

    Interestingly mixing with Toyota people now is like being with the walking wounded, in just about every country, their managers now gripe about the company and the treatment that they get (lack of pay, long hours, no resources, beuracracy) which seems to be as a result of the reaction to the crisis.

    Maybe they actually need to do something truly different and bring in some new people from different companys at the top rather than just taking their next leaders from the infected ranks.

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