Toyota in Trouble (the quick and dirty version)

February 25, 2010

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.

Improvement at Toyota

January 1, 2009

An article on Toyota recently caught my attention. The article discussed how even non-US auto manufactures were cutting back production in the US, and the notable part to me was not the decrease in consumer demand but what Toyota was doing with its newly idle workforce. An accompanying picture showed a makeshift training room set up inside an assembly plant. The article described the training topics, ranging from how to handle tools safely to how to get along better with colleagues of varying backgrounds. Toyota is well known for many management practices – the humility with which it reacts to opportunity for improvement is my favorite. Not only does the company try to surface problems wherever it can (through its “andon cord” on the assembly line), but it also understands that idle time today can be leveraged for improvement tomorrow.  A lesson for all organizations, not just its US counterparts.

And then there’s the topics of its training session. Handling tools safely is unsurprising, but I was struck by working more effectively in an increasingly diverse environment.  It’s another sign of the humility inherent in the organization.  It is designed to systematically understand the obstacles to improvement and to as systemically address them in order to unlock future performance.

Improvement at Toyota: Response

January 1, 2009

I was encouraged that managing workforce diversity found itself sandwiched on a list of training topics, somewhere between improved ergonomics and quality control. It was refreshing to see a company casually dignify the challenge as an operational reality and driver of future performance, not a historic wrong that must be righted while also making fuel-efficient cars. As some of your colleagues at HBS have argued gracefully, including Robin Ely and David Thomas, separating diversity from the central challenge of running a business can be counterproductive.

In my own experience, when a diverse, integrated workforce is treated as a company’s social responsibility, at best, it makes people feel good.  At worst, it fosters resentment and insecurity. But when diversity is treated as a competitive advantage, it becomes just that — now more than ever, as the markets for customers and talent become increasingly global. Toyota’s signaling was clear: diversity is as important and unemotional as reducing dashboard defects.