Has Toyota Lost Its Way?

Probably not for long. But the company would be wise to heed Peter Drucker's advice about growth as it moves forward

The Toyota Way might just as well be called the Drucker Way.

As much as any company anywhere, Toyota Motor (TM) eagerly embraced many of the key principles that Peter Drucker first laid out in the 1940s and '50s: that corporations must move away from a "command and control" structure and cultivate a true spirit of teamwork at all levels; that line workers must adopt a managerial outlook and take responsibility for the quality of what they produce; that the enterprise must be steered by a clear set of objectives while giving each employee the autonomy to decide how to reach those results.

Though widely accepted now, plenty of U.S. companies at the time dismissed these notions as dangerously radical, if not downright loony. By contrast, they were "almost immediately translated into Japanese, eagerly read and applied," Drucker wrote decades later.

Indeed, "Drucker deeply influenced Japanese management thinking," Pascal Dennis noted in his 2002 book, Lean Production Simplified. "Companies like Toyota," he added, organized their manufacturing operations by soaking in and then "refining Drucker's ideas."

So what might Drucker say now that Toyota (BusinessWeek.com, 11/21/07) finds itself hitting a particularly rough patch of road?

I believe that his advice would, in the end, be quite simple: Slow down, even just a tad, in the quest to be the world's largest automaker.

Quality Slips

In the last few months, Toyota has been beset by a variety of troubles, including departures from its North American unit by several top executives; slumping sales (though things picked up again in October); and condemnation from environmentalists, who've challenged the company's commitment to fighting global warming.

Most serious have been rising concerns over the reliability of Toyota's vehicles. In October, Consumer Reports said quality had slipped so badly, it would stop giving Toyota's new or redesigned models an automatic stamp of approval. A series of high-profile recalls in the last couple of years have also tarnished the Toyota Production System, long the envy of the world.

Toyota has downplayed many of its problems, contending that as it continues to expand and prosper, more and more people are quick to criticize it. "The nail that stands highest gets hammered," a company spokesman told one reporter recently, invoking an old Japanese proverb.

Without a doubt, there is some truth to that. But make no mistake: It's shoddiness, more than schadenfreude, that's really the issue here.

Growth Can Make You Vulnerable

Toyota is bent on becoming the top-selling car company in the world, and as it hits the gas pedal on growth, it's obviously finding it tough to maintain its usual standards for quality. The company shouldn't be surprised by this. Perhaps, though, this was the one lesson from Drucker that Toyota somehow missed.

"Growth at a high rate and for an extended period is…anything but healthy," Drucker declared in Management: Tasks, Responsibilities, Practices, his 1973 classic. "It makes a business—or any institution—exceedingly vulnerable. It makes it all but impossible to manage it properly. It creates stresses, weaknesses, and hidden defects which, at the first slight setback, become major crises."

In fairness, it's General Motors (GM), even more than Toyota, that seems caught up in the game of who's the biggest. After Toyota took over as the world's leading seller of automobiles earlier this year, GM Chief Executive Rick Wagoner sounded like a kid who'd just lost his marbles at recess. "I like being No. 1," he said.

"And I think our people take pride in that, so it's not something that we're going to sit back and let somebody else pass us by." (GM has since reclaimed the crown—at least for the moment.)

Yet Toyota hasn't been above a bit of grandstanding of its own. Several years ago, for instance, it announced plans to ramp up global production and seize market share under the slogan "We Can & We Will." Last August, Toyota President Katsuaki Watanabe predicted that the company would sell 10.4 million vehicles in 2009—smashing GM's industry record of 9.6 million sold, set in 1978.

Continuous Improvement

Nobody is accusing Toyota of being reckless. Watanabe has spoken repeatedly of the company's need to be extra attentive to the dependability of its products as it keeps growing, and executives have imposed even tougher quality-control methods in light of its recent difficulties. Hubris, it's safe to say, won't destroy Toyota.

"Breakthrough innovation is only one aspect of" the company's culture, Jeffrey Liker concluded in his book The Toyota Way. "Possibly the most important aspect is Toyota's relentless application of the more 'mundane' process of continuous improvement"—kaizen in Japanese. The company has proven, Liker continued, that it's adept at "learning from its mistakes, determining the root cause of problems, providing effective countermeasures," and "empowering people to implement those measures."

For all these reasons, it's a darn good bet that Toyota will restore its reputation for quality in the next couple of years and also get where it's trying to go, distancing itself from GM to become the undisputed king of the auto industry.

But in the meantime, the few dents it has suffered of late serve as a useful reminder for all managers. As Drucker put it: "The idea that growth is by itself a goal is altogether a delusion. There is no virtue in a company's getting bigger. The right goal is to become better. Growth, to be sound, should be the result of doing the right things. By itself, growth is vanity and little else."

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