Toyota has fallen on hard times. For years, Toyota was considered one of the world’s premier companies. Other firms flocked to Toyota to learn about the Toyota Production System.
Toyota focused ruthlessly on continuous improvement and quality. Because they did, they grew.
In 2009, Toyota officially became the world’s largest automaker. It wasn’t long afterward that there was more news about Toyota’s problems than there was about Toyota’s success.
There were problems with sticking accelerator pedals (the largest automotive recall in history) and what Toyota called “floor mat entrapment.” Various recalls covered almost every Toyota model from Avalon to Venza. Production and sales were halted on some models.
As if that wasn’t enough, governments in the US and elsewhere accused Toyota of covering up problems. Soon the president of the company was on television, apologizing in front of a legislative committee.
Things were bad on the business front, too. There were massive fines. And Toyota announced that it had posted its first loss in 60 years.
What happened? How did one of the most revered companies in the world go from hero to villain so quickly?
The answer is actually simple. Toyota shifted its focus from continuous improvement and producing high quality automobiles to growth.
Production jumped 60 percent between 2000 and 2008. There were some years where the increase in Toyota production was larger than the total production of auto companies like Chrysler.
Somewhere along the way, Toyota shifted its focus and made growth the main goal. That created the Growth Paradox.
The Growth Paradox is that a ruthless focus on growth is often the worst thing you can do if you seek long term growth. That’s what happened at Toyota.
The company’s success was rooted in the way production lines worked. First line supervisors were the key. Toyota’s supervisors were expected to be coaches and mentors.
That’s a role it takes time to grow into. Pushing production meant increasing capacity beyond what the number of qualified supervisors could handle. Quality suffered, but no one was aware of it for a while.
Testing of new cars was not as thorough as it once was. So more problems slipped through.
Toyota’s system for gathering information about problems and customer complaints was not up to the challenge of more, and more frequent, problems. And executives, pushed for more growth, had little incentive to point out problems.
When Toyota maintained a ruthless focus on continuous improvement and quality, the result was incredible growth. But when Toyota began to focus on growth itself, problems increased.
Toyota isn’t the only company that’s had this problem. Companies as different from Toyota as Chico’s and Marriott have created hard times for themselves when growth became the primary objective of strategy.
Will Toyota get its mojo back? The odds are that they won’t.
According to a study by the Corporate Executive Board, only about an eighth of companies who hit a stall like Toyota’s ever recover. It will take a lot of hard work.
Toyota will have to unwind the results of the emphasis on growth. That means looking hard at who got promoted and how people got rewarded.
And Toyota will have to refocus on continuous improvement and quality. That won’t happen quickly. The changes that brought Toyota to this place took time, so will the change back.
There’s an important message here for all of us. If loss of focus on core strategy can happen to Toyota, a company often described as “obsessive” and “cult-like,” it can happen to any company.
The story of Toyota’s focus on continuous improvement and quality is told in detail in Ruthless Focus: how to use key core strategies to grow your business.
