In analyzing Toyota’s history, I found that the company best follows Aristotle’s famous quote: “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” Indeed, Toyota practiced its lean manufacturing system to the letter and had successfully grown to become the largest car company in the beginning 2008. However, the worldwide recession coupled with a devastating recall crisis led Toyota to report its first ever net operating loss. Even worse, consumers started to doubt Toyota’s superiority and reliability. A Feb. 9 Fortune Magazine article (link by Alex Taylor details Toyota’s strategy to regain market share and continue to differentiate itself in 2012.
Toyota of the Past:
When Toyota introduced the Corona in 1965, it was able to differentiate itself simply by offering small, reliable, and incredibly fuel efficient cars. Why? In the 1970s to 1980s, the Big Three endued widespread hardship. Deteriorating quality and the failure of manufacturers to recognize the changes of the global economic market contributed to Detroit’s hardships. Americans wanted smaller cars after the 1973 oil crisis and the Big Three simply had not already entered the compact car market. Toyota capitalized on the Big Three’s lack of foresight.
Yesterday Doesn’t Matter:
One of the key reasons why Toyota started to lose market share was because it became complacent. Toyota’s U.S. sales executive even admitted it when he stated, “we were a little complacent.” Toyota executives did not feel the pressing need to continue to innovate after stealing the market share away from the Big Three. However, GM and Ford underwent a transformation and began adding smaller, sexier, and more reliable cars to its production line.
In 1995, American automobile manufacturers enjoyed an economic silver lining: The rising value of the yen drove the price of Japanese car upwards. Factor in Toyota’s public relations disaster with its vast recalls and Detroit manufacturers once again led the world. Indeed, Toyota slipped to third place behind GM and Volkswagen.
Toyota of the Future:
Taylor’s Fortune Magazine article describes the story of a man named Akio Toyoda and his vision for Toyota’s future. Akio has had a very difficult past few years: US market share fell from 18.3 percent from 2009 to 12.9 percent in 2011. Akio formally apologized before congress for his company’s deathtraps that accelerated out of control. And, tsunamis ravaged Japan, which killed over 15,000 and halted production at a number of factories while disrupting the supply of 500 parts. Akio made the following four fundamental changes to reposition Toyota:
- Focus on designing brands that excite US buyers: “To give Lexus a sportier image, he championed the development of the $375,000 LFA, a carbon fiber super-car.
- Be Fast and Move Quickly: Akio shrank the “board of directors by half and took out layers of management.” Akio also meets with five top advisors ever week and makes decisions on the spot without written agendas.
- No more Executive Rotation: Previously, executives rotated positions. A product engineer, for example, could work on manufacturing. No longer—executives stay at the position that they are best at.
- “Always make better cars” mentality: This Spring, Toyota will launch the plug-in Prius. It's a $32,000 car that has a battery that can run for 15 miles without gasoline.
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My Two Cents:
In class, we reviewed Cynthia Montgomery’s “Putting Leadership Back into Strategy” article that described a CEO’s primary responsibility. According to Montgomery, a CEO is “the guardian of an organization, watching over the entity, guiding its course, bringing it back to the center time and time again.” Akio’s four strategies are doing exactly that. He’s continuing to foster Toyota’s competitive advantage with its “lean production system,” while, at the same time, demanding that the company innovate and produce more exciting cars. Akio’s strategy to keep executives in one place should help improve Toyota’s quality while avoiding another recall disaster. And finally, his “always make better cars” mentality is not lip service. As the grandson of the company’s founder, Akio cares more than anyone about continuing his family’s success. His ultimate goal is to restore honor to Toyota’s name and I am confident that he’ll be successful.
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