Toyota is considered by many lean practitioners as the model to look up to, to emulate no matter what. But the recent vehicle recalls and the company’s struggles that followed natural disasters in Asia convinced many that the Japanese car maker is no longer the Holy Grail of lean it once was. But was it ever? Jeffrey K. Liker and Timothy N. Ogden, authors of Toyota Under Fire, respond.
In 2007 Toyota was one of the most valuable global brands, widely admired and copied for its excellent production system and management practices, and the envy of the world for its operational excellence and high quality products. Profit per vehicle was more than 80% higher than second-place Honda.
Perhaps the most telling statistic is the simplest: Toyota was profitable every year from 1950 until 2008. The car maker seemed charmed, impervious to the ebbs and flows of the business cycle and of the missteps, blind spots or miscalculations of virtually every other firm.
Then, over the course of three years, Toyota was hit by a stunning series of setbacks on every conceivable front. Oil prices spiked (which negatively affects both Toyota’s costs and sales), the global recession came, allegations of serious quality safety and quality problems hit, leading to tens of millions of vehicle recalls; and to top it off, two major natural disasters (flooding in Thailand, and the earthquake and tsunami in northern Japan) struck key areas of Toyota’s production and supply chain. This remarkable series of events brought Toyota’s unbroken record of profitability to an unceremonious end.
Despite the downturn in Toyota’s fortunes, some things didn’t change. Throughout this period Toyota did not engage in any involuntary layoffs. It invested in continuous improvement and people development around the world. It invested in research and development for the future. And it invested in quality.
Now that statement may bring a few readers up short. After all, arguably the largest blow to Toyota in this difficult period were the indications that Toyota had cut corners on quality and safety. But look behind the headlines at the actual data and a different story emerges.
Toyota won just as many, if not more, quality awards during its supposed quality struggles as at any other time in the company’s history. In 2009 Toyota (or its Scion or Lexus brands) placed first in six of ten categories on the Consumer Reports quality survey. In the fall of 2010, Toyota led 10 of Consumer Reports’ 17 categories. J.D. Power consistently ranked Toyota models among the top five for initial quality (during the first three months of ownership) in nearly every category in which Toyota had a vehicle on offer. In 2011, Toyota dominated J. D. Power’s three-year dependability ratings – ratings of the same cars that had been at the centre of the recall crisis.
Never during this time did Toyota’s brand value among automotive companies fall from its perch at the top. In fact, Toyota’s brand value overall improved! According to the brandirectory Global 500, in 2007, before all of the bad news, Toyota’s brand value among all companies had slipped to 16th, but by 2009 and 2010 it was up to 10th.
Toyota returned to profitability quickly, despite the ongoing series of setbacks, suffering only one year of actual losses. And in 2012, the first full year without a major crisis, returned to number one in global units sold.
That’s the kind of performance – absorbing blow after blow while maintaining quality, investment and profitability – that most companies would find unimaginable.
And yet, if you spend much time in lean circles you’re more likely to hear doubts about Toyota’s ongoing value as a lean model than you are to hear expressions of amazement at its incredible resilience.
So why all the hand wringing about Toyota’s demise as a company to admire and learn from? We summarise and refute five myths propagated through ignorance (and occasionally through malice) that have distorted views of Toyota, and which are ultimately damaging to the spirit and advancement of the lean movement.
Myth #1: The struggles of Toyota through the Great Recession and recall crisis revealed serious weaknesses in the company
Reality: As we discussed above, Toyota’s actual record during this period was one that many companies would rightfully envy. Except for a few months early in 2009 during the most intense attacks on Toyota’s reputation for quality, safety, and integrity, the organisation has been at or near the top of ratings on just about every measure compiled by (truly) independent analysts – quality (initial, three year, and five year), safety, retail sales, resale value, value for dollars spent, value of the brand, and environmental friendliness.
Even when sales plummeted during the recession and during the worst of the recall crisis, Toyota kept team members employed and engaged with training and kaizen – continuing to develop people and make processes more flexible, more productive, and capable of higher quality. Many plants were able to make dramatic quality breakthroughs during the “downtime.”
That being said, Toyota executives from Akio Toyoda on down will tell you that there were serious weaknesses revealed – it’s just that those weaknesses aren’t what are commonly imagined or believed. The company engaged in a great deal of reflection, which led to major initiatives to connect better with customers, get data on customer experience directly and quickly and to the right person who could act on it, speed decision-making, increase information flow between regions on quality and safety and to invest further in people development.
In that sense the recession and the recall crisis revealed weaknesses at Toyota that could have hurt its future – and the company immediately took steps to improve.
Myth #2: Toyota had electronic problems that led to sudden unintended acceleration endangering customers
We cover this, at a level of detail that seems obsessive to many readers, in our book Toyota Under Fire. There never was any evidence of runaway Toyotas. That was the conclusion of the National Highway Traffic Safety Administration and the NASA engineers the agency hired to investigate the alleged problems with Toyota vehicles.
The wave of recalls Toyota undertook during the runaway vehicle hysteria were to correct two “defects”: customers would stack floor mats in vehicles high enough to trap the accelerator pedal; and some accelerator pedals could become “sticky” and slow to return. In neither case could the accelerator overcome the vehicle’s brakes if applied. When Toyota finally realised that customers were truly worried about the safety of their vehicles, it decided to go over and above with recalls.
Before moving on, we’ll briefly note that the most famous runaway vehicle accident – the incident that started the crisis – had a definitive cause: a dangerous oversized floor mat from a much larger vehicle incorrectly installed in the vehicle. As documented in the California Highway Patrol’s investigation of the accident the vehicle in question was a loaner vehicle provided by a local Lexus dealer. A few days before the incident another customer had been using the vehicle and found that the accelerator became trapped under the floor mat. He removed this dangerous floor mat, returned it to the dealer and complained. The dealer, rather than correcting the problem, reinstalled the mat and loaned the vehicle out again with tragic results.
Myth #3: Toyota’s massive numbers of recalls are signs of a serious decline in quality and safety
There are two factors to note here. First, the reality of the global automobile industry requires that manufacturers strive to adopt common “platforms” and parts, meaning that many parts are reused across many different types of vehicles. And Toyota has been the industry master of this. Thus, a single defect today will yield a much larger number of vehicles recalled than it would have a decade ago, particularly if you have been successful and have a large number of vehicles on the road. The proper comparison is not number of vehicles recalled, but number of recalls, which is akin to number of errors made.
However, even measuring recalls leads to a distorted picture. As we noted above, in response to the fears of customers, Toyota has changed its approach to recalls. The company has decided to factor in customer perceptions and not just actual engineering defects into its recall decisions, a move we have not seen by other auto makers. That’s the right approach for a company that strives to put customers first, and arguably it should have been that way prior to the recall crisis. Regardless, Toyota’s new approach to recalls shouldn’t be mistaken as reflecting on engineering quality. You will continue to see more vehicles being recalled by Toyota today than in the past as they seek to do everything possible to earn and keep customers’ trust.
Myth #4: Toyota’s “woes” were caused by growing too fast
To explain Toyota’s alleged struggles, many experts cited the company’s rapid growth from 2000 to 2010. The assumption was that the large number of new people brought in diluted the culture of excellence. Others claimed that Toyota, in response to this growth, shifted its focus from quality to profits. Akio Toyoda himself said the company grew too quickly.
We certainly won’t claim to have more insight than Toyoda-san, but in our conversations with him it is clear that he believes that Toyota’s rapid growth was not causing problems in actual product quality but in the ability of the company to react quickly to change, to connect with customers deeply and to continue its decades of continuous improvement. It’s not that company had gotten worse, but that it was failing to get better as fast as it should.
Myth #5: Toyota is no longer the “holy grail” of lean that everyone should strive to emulate
After our spirited defence of Toyota thus far, you may be surprised to read that we don’t think this is a myth. It is absolutely true. Toyota isn’t the “holy grail” that the lean movement should look to today. But it’s also true that it never was.
To explain that assertion we have to delve into the assumptions behind this statement. The first is that there is value in emulating a model. The second is that Toyota was at some point a “holy grail.” Third, whatever characteristics crowned Toyota as the “holy grail” have degraded to a level that it fell off this pedestal.
After The Toyota Way was published in 2004, Jeff got a strange question from an America Toyota vice president at the Toyota Technical Center in Ann Arbor: “Do you really believe we are this good?” He then answered his own question: “We have many warts just like any other company.”
The fact is that Toyota never was and never will be a “holy grail” of lean. Leave that for gods and goddesses. What we believe does deserve a special place is the Toyota Way. Don’t mistake Toyota for the Toyota Way. The Toyota Way is an ideal where every place, every second, every person is demonstrating great respect for people and continuously improving products, processes, and themselves. Toyota doesn’t have any pretentions that it lives up to the Toyota Way. No one else should either.
We greatly admire the ideals of the Toyota Way, including: challenge people to think deeply about problems and constantly improve themselves, maintain the positive outlook that there is always a better way and we can achieve it, think long-term, put society and the customers ahead of self-interest, and strive for perfection. In our experience Toyota works harder and more consistently in achieving these lofty ideals then any large, multinational company we know of, and in most cases by leaps and bounds.
Will studying at the altar of Toyota lead to these same values, ideals, and passionate pursuit of perfection? Absolutely not! You learn by doing on your own journey, through struggles. The Great Recession, the recall crisis, and even the natural disasters were in some ways a blessing in disguise for Toyota, as it pushed the Japanese into relinquishing some control over the regions of the world, allowed and challenged regional leaders to take more responsibility for their development, and led to thousands of kaizen activities to improve Toyota’s quality and responsiveness to customer concerns.
The “holy grail” then isn’t Toyota, or even truly the Toyota Way, which is simply one particular way of expressing the true goal: zero defects, zero waste, people first, always innovate. Any organisation that finds the energy to relentlessly pursue that goal is worth studying and learning from. But if you ever change from actively pursuing the goal to emulating such an organisation, then you’ve lost your way.