Katsuaki Watanabe: Fighting To Stay Humble

Katsuaki Watanabe lifted his water glass and looked at it, slowly, carefully. "If you stare at this long enough, you can see many cost problems," he said. "It's such a complicated design. A paper cup would cost a fraction of this."

That episode, in July, 2005, was classic Watanabe. The 64-year-old president of Toyota is a reserved man, cut from traditional salaryman cloth. Coaxing details from him is like squeezing water from a stone. Then Watanabe will suddenly fix on a question or an object that seizes his interest and examine it with intensity.

That ability to focus explains how Watanabe got to the top of Toyota Motor Corp. (TM ) in June, 2005. He has no international experience, and his English is limited. He doesn't have Renault-Nissan (NSANY ) CEO Carlos Ghosn's presence on the podium. His manner is self-effacing in the extreme. Some have wondered if Watanabe was a stopgap, keeping the seat warm for the 50-year-old Akio Toyoda.

When Watanabe does talk, you realize why he was chosen: He is obsessed with keeping Toyota safe from its own success. "To be satisfied with becoming the top runner, and to become arrogant, is the path we must be most fearful of," he says during a rare one-on-one at Toyota City headquarters.

In his long career, Watanabe has run Toyota's staff canteens, overseen the company's Motomachi plant, and managed the corporate planning division. But it was as chief architect of Toyota's CCC21 cost-cutting plan that Watanabe embodied the company's fanatic drive to stave off complacency. The goal was to slash prices on all key components for new models by 30%. Getting there required a reinvention of Toyota's relationship with suppliers and a reexamination of the cost of every item, however mundane, from ball bearings to turn signals. The program saved Toyota $10 billion.

The Toyota boss is now leading a second effort, Value Innovation Activity, to trim costs even more: Toyota will overhaul the way it designs cars to find savings early in a model's evolution. He also vows to make Toyota's next class of hybrids much more affordable: "We're aiming at cutting in half both the size and cost of the third-generation hybrids."

Watanabe is seizing on every pretext to create an atmosphere of emergency. Last summer a string of recalls were denting Toyota's reputation for quality. Taking responsibility, Watanabe made several public apologies, describing the problems as a "crisis." He then delayed new car launches, including a revamped Corolla in the U.S., to ensure that quality was up to snuff.

Yet the numerous apologies were arguably as much a warning to Toyota's rank and file as a means of reassuring customers. "Before I met Mr. Watanabe, I wasn't so impressed. But the thing I found with him is that actually he is very tenacious," says Tatsuo Yoshida, an analyst at UBS (UBS ) in Tokyo. "Toyota has used the quality issue to shake up the whole organization—subsidiaries and suppliers included."

That shakeup gives Watanabe a fleeting feeling of satisfaction. "There's been improvement," he says. "Big-company disease' has been receding." But then the self-congratulation is over. "There are so many challenges we need to address," he says. "Problems must be made visible."

By Ian Rowley

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