Thursday, January 31, 2008

Toyota Will Win: Preserving Culture in the Face of Growth

February 16, 2007

Toyota Will Win: Preserving Culture in the Face of Growth

Thursday's New York Times had a terrific story on Toyota and the challenges they've had in spreading the "Toyota Way" across cultures, geographies and generations. I truly understand what they are going through, being a long-time supporter and student of Japanese quality management principles (TQM) (or, rather, U.S. quality management principles, if one considers the genesis of Japanese TQM as being the American visionary W. Edwards Deming. The weak U.S. response to Deming's teachings in the late 1940's likely squandered as much value for Corporate America as Xerox PARC's inability to commercialize leading-edge technologies that represented the foundation for 30 years of hardware and software innovation squandered for its shareholders).

But what the Toyota story highlights is an inexorable clash between culture and growth that is being faced by all global companies today, where the phase "Think Global - Act Local" is on the lips of senior managers everywhere. The big challenge: who will successfully navigate the rocky shoals of globalization, particularly as growth opportunities migrate from a handful of long-time "first world" countries to those that are less developed but approaching first-world status at a rapid rate, i.e., India and China (remember Ebay in China?). And this doesn't take into account the challenges of further penetrating those first-world countries where differences in culture and industry structures are significant, i.e., Toyota in the U.S., Wal-Mart in Germany. Here are some interesting extracts from the NYT article:


Toyota’s corporate culture has transformed it from a small manufacturer into a market-gobbling giant famous for quality circles and giving workers control over production lines. For years, aspiring factory leaders have come here to attend Toyota’s select technical high school, the Toyota Technical Skills Academy in Toyota City.

But Toyota — on course to become the world’s largest automaker — needs to sharpen its game to meet even larger challenges, including raising quality in the face of rapid overseas expansion and its largest recalls in history.


It is the Toyota Institute, charged with preparing executives to enter the leadership class at Toyota by inculcating in them some of the most prized management secrets in corporate Japan. The institute sends off its executives to offices around the world as missionaries of sorts for the Toyota Way. The institute does not quite aspire to be Japan’s answer to General Electric’s famed Crotonville training center in Ossining, N.Y., which spawned a generation of top executives across American industry. But it is Toyota’s best effort to avoid corporate short-sightedness and to keep the company true to its original mission of winning customers with quality cars, even as it comes under intensifying scrutiny.


“Before, when everyone was Japanese, we didn’t have to make these things explicit,” Mr. Konishi said. “Now we have to set the Toyota Way down on paper and teach it.”

“Mutual ownership of problems,” is one slogan. Other tenets include “genchi genbutsu,” or solving problems at the source instead of behind desks, and the “kaizen mind,” an unending sense of crisis behind the company’s constant drive to improve.

The whole company prizes visibility. To nurture a sense of shared purpose, Toyota has open offices — often without even cubicle partitions between desks.

Dissemination of the Toyota Way overseas, however, can be spotty, executives and analysts warn. Toyota prides itself on pampering customers, but analysts are reporting weak or uneven service at Toyota sales subsidiaries, particularly in emerging markets like China and India.

Worse, some executives like Mr. Konishi complain of managers at Toyota factories who have not adhered to some of the company’s most basic creeds, like allowing workers to stop factory lines when they spot defects. Empowering factory workers has long been central to Toyota’s quality control.


“If Toyota can’t infuse its philosophy into its workers, these quality problems will keep happening,” said Hirofumi Yokoi, a former Toyota accountant who is now an auto analyst at CSM Worldwide in Tokyo. “The institute was founded because Toyota is afraid of growing too fast and losing control. It’s still too early to know if it will work.”


Toyota’s culture, she said, is still grounded in a Japanese-oriented brand of group-think. But in some cases, Toyota has also adapted it to fit American culture, she said, dropping group calisthenics at American factories, for example, although that is still common at Japanese plants.

She said she understood the Toyota Way better after learning from people who had lived it their entire professional lives. She now uses the wall chart as a critical motivating tool for managing her employees.

“When I saw folks in high ranks, like Mr. Watanabe, and how consistent and dedicated they were, I knew they were true believers” in the Toyota Way, Ms. Newton said. “Now, I’m a true believer, too.”

What I am seeing here are a few things that make me confident that Toyota will get it right, and that they will become (if they aren't already) a model for how to globalize in the context of a complex, culture-laden industry:

They know they have a problem. Yes, uncharacteristic quality problems have cropped up all over the place. This is unacceptable and they know it. But rather than spitting out platitudes like "We'll get to the bottom of this; it will be better next quarter" or "These things happen; we're all about increasing our global footprint and increasing revenues," they are focusing on root cause. This is how you build a winner for the long-term instead of a hype machine for the short term.

They have defined the problem. "We need to grow but need to do so in a way that builds brand value. And increasing quality defects in the face of growth damages brand value." Toyota's is a problem akin to one playing Monopoly: is the right strategy to buy every property one lands on (the "Land Grab" strategy, where one has a lot of negotiating power if you survive but could result in bankruptcy with a little bad luck), to hoard money and only buy those prime properties that one can use to assemble a desired monopoly (the "High End" strategy, which could be successful if a monopoly is assembled but results in a small footprint and a potentially slow death if others don't land on you and build around you) or some combination of the two. I'd argue that Toyota's goal is a blend, where a measure of "Land Grab" (read: global expansion well beyond its own culture) and "High End" (read: expand in areas where it has a high likelihood of success) is at play. They have a clear sense of what they are trying to do. It is now a problem of execution.

They want to get the culture right. They have a way of doing things that has worked for a long, long time, but are breaking down in the face of rapid global expansion. As a result, they are emphasizing the Toyota Institute as a vehicle for training experienced evangelists who can bring the Toyota Way across the globe. But they are seeking to apply these principles in a manner that is acknowledging and respectful of the different cultures in which they operate. This strikes me as being somewhat similar to the Six Sigma training at GE, where it is an integration of scientific methods and tools and management techniques for instilling culture in far-flung operations. This a necessary element to building long-term success across geographies and cultures. This is just smart.

For people and companies committed to quality it is a sacred quest, spreading the mantra of TQM across the world. It is this kind of vision, commitment and long-term perspective that will make Toyota one of the winners in a rapidly flattening world. Globalization is a high-risk/high payoff game, and they are doing everything in their power to stack the odds in their favor. I hope they win. I think they will.


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The Toyota Way is well worth reading about.

| February 18, 2007 at 12:00 PM

There are a number of globalization hurdles Toyota has to overcome. Obviously, it should make no different where Toyota vehicles are made from quality perspective, however the Japanese cooperation of manufacturers, suppliers, distributors and banks in closely-knit groups (keiretsu) and big firm shushin koyo makes Japan unique as a nation. Nevertheless, despite record sales, Toyota's quality reputation has been hit by a series of recalls that you could blame on its rush to cut costs. Here in the UK we are not bad at making cars: Toyota's plant in Derbyshire and the Nissan plant in Sunderland are among the most efficient in Europe - although Nissan did report a 23% slump in profits yesterday for the last quarter of 2006, blaming the poor results on rising commodity costs, fierce competition and stagnant sales. Part of the problem Toyota may face in the US could stem from strict house agreements with unions and employee costs, eg healthcare, has risen faster than inflation for many years.

Rob (lean) (six sigma)

| February 18, 2007 at 10:14 AM

While they have indeed had a few quality issues, I'm not sure that qualifies as their "losing". They're doing a whole lot better than the other OE's both in terms of growth and profitability. Their valuation is much richer. Their equity is worth more than any other OE, period. Looking at the comps it seems to me that they're winning, but that perhaps they have some looming problems on the horizon.

In fact, I think one of the biggest problems they have now is just how much they've been winning. I get the impression all eyes are on Toyota right now, trying to find all the ways Toyota is extracting advantage unfairly. Number of plants in the US versus cars shipped in. Manipulation of the yen. Blah blah blah. And if you read between the lines of what Toyota is saying, they hear everyone loud and clear, and have responded accordingly. The pricing on the Tundra seems very much on the high side. Building brand equity, or keeping their competitors in the game? They're building out multiple plants in the US now to normalize their vehicle imports. They're in discussion with Ford.

Toyota is a winner in this, but I think they'll need to (and intend to) "ease off the throttle". I think they'd rather have a mangled but breathing Ford than go full force for the death blow. But are they "losing"? No way! Not from my vantage point at least.

| February 16, 2007 at 05:30 PM

1 comment:

curiouscat said...

I think you are right - Toyota continues to impress. I discuss Toyota's management principles, among other things, on my blog.


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