Lessons from the Toyota recall

2010

For several decades now, Toyota has been the benchmark in manufacturing. For automobiles as well as for all other types of manufacturing, "the Toyota way" has been seen as a path to success.

Toyota's attention to details, unrelenting expectations regarding perfect quality, the selling of "self-assurance" to the buyer that their car will be trouble-free - and building an organizational culture that delivered on these promises over and over again - are all areas in which Toyota did better than almost any other company on the planet.

Now, with the revelation that many Toyota automobiles are neither as well-built or as safe as we had all taken for granted, the image is tarnished. Perhaps, Toyota is like most other organizations in promising things that it can't deliver on and selling a brand that has little substance behind it?

But if we reflect for a few minutes, it becomes clear that Toyota remains the benchmark when looked at in the context of the sorry state the world's automobile industry has got into. Despite the recall of millions of vehicles - apparently the largest such recall in history - Toyota still stands-out within the automobile industry for making cars that work and for innovating in ways that are likely to shape our future.

However, Toyota failed in that while pursuing growth, it neglected to pay attention to things that it already knew as an organization.

One of the things that Toyota knew and yet forgot, according to Paul Ingrassia, the author of a new book on the auto industry entitled Crash Course, was to "never build... a new product in a new factory with a new workforce."

These "three nevers" offer a useful insight into how organizations must combine "knowing" with their "growing" if they are to succeed in a global marketplace. As we move into a knowledge-intensive era, it is not surprising that "knowing things" will become as important, if not more so, than "making things."

Knowing what to make, how to make it, who to make it for, will be the keys to success. It will increasingly be about organizations that know more than other organizations and which have figured out how to know more. In other words, smarter organizations.

Toyota has always been among the "smartest" organizations, yet here in their pursuit of ever-greater global growth is an instance where they weren't very smart, after all.

The Toyota situation has been described rather neatly by two IMD Professors, Bala Chakravarthy and Peter Lorange, in their book Profit or Growth; Why You Don't Have to Choose. They argue that firms that are intent on growing - as opposed to protecting and defending market positions - can expand by either opening new markets or offering new competencies, but not by doing both at the same time! This is another way of stating Toyota's "three nevers".

Another way to say that global growth is based on what you know, and selectively learning new things. Abandoning everything that you know, be it about markets, technology, customers, offerings, etc. all at once, is to proceed forward knowing very little!

One of the key reasons for the wisdom of Toyota's "three nevers", and why it was so costly to forget them, is the power of "tacit knowledge."

According to Professor Ikujiro Nonaka, one of the founders of the field of knowledge management, knowledge can exist in either a hard or formal form, such as in documents, books or memorandums; or in a "tacit" form such as "know-how" in the heads of people familiar with particular work arrangements.

While it is relatively easy to transfer knowledge in formal formats and over great distances – via email, faxes, even physical transfer - it requires personal interaction to transmit "tacit" knowledge from one individual to another. In fact, we might not even realize that we possess such tacit knowledge until a conversation with a colleague crystallizes the thought and we recognize what it is, in fact, that we know.

The problem with violating the "three nevers" is that we abandon all hope of tacit knowledge transfer. By moving into new product areas, in new geographic markets with new factory settings, there is no hope for a "head-start" or fast-advantage based on exploiting existing knowledge. Nor, given the physical and cultural distances that the "three nevers" present, is there much hope for easy tacit knowledge transfer, either.

Successful globalization is much too difficult a journey without the assurance of having some knowledge that gives your organization a basis for advantage. Perhaps it is relying upon existing product offerings in new markets; or else it is making new products in existing factories with experienced workforces; or maybe it is using a seasoned team of veteran managers and workers to tackle a new problem in an existing market.

The key is always keeping some of the familiar while embarking on something new. To do otherwise is to risk following on the wrong Toyota path to success.

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About The Author

Bill Fischer
Bill Fischer

Bill Fischer is Professor of Technology Management at IMD, the leading global business school based in Lausanne, Switzerland.

Older Comments

Excellent insight into what may have contributed to creating this crisis. In addition, there are several factors that conspired so that Toyota mis-handled their response to the crisis. First, in Japan all loyalty is to the company, not to the customer, so in the event of product problems 'stonewalling' is the response. That does not work in the U.S. Toyota's slow reaction to the emerging news hurt them, then their first responses failed to take responsibility and were too little too late. They now are in 'catch up' mode, and they may wind up paying dearly in lost and tarnished brand value for their mistakes. In addition, they are way behind the curve in using social media to help provide some counter-balance to bad news.

Ron Strauss Atlanta, GA

I worked for Toyota's U.S. HQ for 20 years including stints at the Global Knowledge Center which is a department within the University of Toyota who's tasks include transfering knowledge to various Toyota entities globally.

I would like to offer my own perspective on this situation. First, it is important to note that this situation is still emerging so drawing 'conclusions' from it at this state is certainly premature. Suffice it that Toyota is first and foremost a learning organization. Elaborate routines are in place to evaluate both successes and failures as are systems to share knowledge gained from both.

Given that fact, Toyota goes to extraordinary lengths to study even routine problems to prevent their reoccurance let alone major issues such as those present today. If any company is properly configured and disciplined to learn from their errors, it is Toyota. These things require time to fully analyze. It is a mistake to confuse that with 'stonewalling'.

We in the West tend be impatient and eager to pass judgement without first gathering the facts. This is completely opposite to Toyota's obsession with gathering ALL the facts before deciding on remedial actions. Yes, this can seem laborious and slow but it has proven to be a very useful strategy over the years as we can all attest.

One thing is certain. Toyota will do the right thing, they always have and they always will. This is Toyota's DNA. And they will do the right thing with or without grandstanding politicians who have questionable motives of their own!

We in the business community stand to learn a lot from objectively watching how Toyota handles this situation.

Ken Torrance, CA