How toyota became 1
Secrets from the leading auto giant
Description
In just 25 years, Toyota has risen from an unknown start-up to the world's top auto manufacturer, surpassing GM and Ford. This meteoric rise is often attributed to Toyota's mastery of lean production, but that is only part of the explanation. An even bigger factor is Toyota's unique and deeply-ingrained corporate culture, which drives the company's competitive edge. As one manager said,
Toyota focuses not on sales or profits but on developing people through a proven lifestyle of continuous improvement and betterment. So Toyota's business mantra is less about quarterly earnings than about striving each day to progress as individuals. In short, Toyota's culture encapsulates an approach to business that fuels ongoing marketplace success.
Table of contents
01Toyota history thus far
Kiichiro Toyoda founded Toyota Motor Company in 1937 after selling his highly successful automatic loom works company started by his father, Sakichi Toyoda. The sale gave Kiichiro one million yen, equivalent to about $20 million today, which he used to start Toyota. Kiichiro established his father's five key business principles - challenge, kaizen, genchi genbutsu, teamwork and respect - as Toyota's guiding philosophies.
In Toyota's early years, it struggled to sell cars, moving only around 1,500 vehicles in its first seven years while finding more success with trucks. Sales grew when Japan forbade vehicle imports, ending competition from US automakers. During WWII, Toyota focused solely on military production. After the war, with US permission, Toyota began producing affordable "people's cars" again, selling over 100,000 Toyopets in 1947. Though it hit hardship with Japan's 1950 recession, forcing layoffs and Toyota's only financial loss, it never lost money again.
In the late 1950s, enthusiastic Toyota employees returned from a US trip and set up a small SoCal Toyota dealership. But with US brands dominating 90%+ of sales, only 300 Toyopets and trucks sold in Toyota's first US year. Toyota found success by designing US-specific models like the 1965 Corona. In 1976, it became the first foreign automaker to sell over 100,000 US vehicles in one year. Though still importing, by 1986 Toyota sold 1 million US vehicles, capturing 10% market share. It launched its luxury Lexus brand in 1989, selling 70,000 vehicles in two years.
02Toyota company culture
Always focus long term
Toyota takes a long-term approach to business in contrast to most western companies, whose executives focus on short-term gains like quarterly profits and stock prices. Toyota feels less pressure to take expedient actions and instead does what will work out best in the long run. For example, ford and gm have sold heavily discounted, unprofitable fleet vehicles just to drive up volumes. Toyota refused to do this and relied on genuine consumer demand, allowing the camry to become the top seller while many ford and gm models no longer exist. In the 1990s, ford and gm generated huge profits from suv sales while toyota invested in developing a more fuel efficient vehicle for the 21st century.
This led toyota to launch the prius hybrid in 1997, selling over 430,000 annually by 2007. Toyota operates a “pull” production system geared towards customer demand rather than a “push” system where automakers make what they want to sell. This has yielded consistent profitability for toyota while ford and gm regularly swing between profits and losses.
Toyota builds consensus, so execution is easier when everyone already agrees. Its “go and see” ethos had toyota partner with gm to open nummi and bring toyota’s production system to a u.S. Plant. Toyota sent top executives while gm sent mid-level managers. Toyota aimed to implement its methodologies in america and learn u.S. Manufacturing; gm saw it as a learning opportunity but failed to apply lessons later. Toyota got more out of the venture. Toyota moves faster than competitors due to thorough planning and streamlined implementation, often besting development timelines by 30%. Combined with quality standards, this widens toyota’s lead. When toyota decides to act, it moves quickly because everyone already bought into the decision through extensive planning.
Jump beyond current trends
Toyota has actively evolved as an organization, readily adapting whenever change is necessary. This flexibility allows toyota to enter new markets and discard unproductive practices. A key example was when toyota opened the nummi plant, a joint venture with gm. In japan, toyota executives typically enjoyed privileges like private offices, suits and ties, chauffeured transportation - similar to american automakers. But for nummi, toyota felt its managers must become teachers to implement the toyota production system. So toyota managers abandoned suits for standard employee uniforms, eliminated reserved parking in favor of first-come-first-served spaces, and worked in large rooms with desks lined up equally. Toyota sought to avoid elitism and autocratic leadership in favor of hands-on teaching and reasonable democracy.
While rivals maintain a “business-as-usual” mindset, toyota actively evolves. Although popular, morning calisthenics were discontinued in america. Many changes have allowed toyota to adapt to 21st century business demands, rather than remaining fixed in place. Now toyota is considered an american company rather than a japanese business. In 2006, fortune magazine’s “most admired companies” list contained no other foreign companies, confirming to toyota that adaptation is critically important today.
Toyota believes human beings should have infinite possibilities to explore. Unlike most american and european employers with limiting job descriptions, toyota’s descriptions are for guidance only. Employees are urged to go beyond them, creating infinite possibilities. Contrary to the rigid hierarchy of large manufacturers, toyota has a management system promoting consultation and collaboration over directives. Managers are more coaches and facilitators than bosses. They manage as if they have no power, seeking to convince people to do right voluntarily rather than by command.
Quality is everyone's duty
Toyota is renowned for its exceptional commitment to quality and continuous improvement. A key aspect of this is their practice of immediately stopping the production line whenever a defect is detected, enabling the root cause to be analyzed and addressed. Employees at all levels are empowered and expected to "pull the cord" if they see a problem.
This reflects toyota's strong culture of fact-based analysis to get to the heart of issues. Employees are trained to ask "why" at least five times when problems occur, peeling back layers of symptoms to reveal the true underlying cause. For example, if a machine stops working, they would inquire why it stopped, why that part failed, why the wrong part was used, why the engineer chose that part, and so on, until the root issue is uncovered.
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