Friday, February 26, 2010
Authored by Alan Pang, Director, Aon Consulting Global Research
Center
SINGAPORE, Feb. 26 /PRNewswire-Asia/ -- The following is a
research paper prepared by Alan Pang, Director of Aon Consulting
Global Research Center, and released to media today, which
discusses Toyota's leadership strategies given its recent recalls
issue, and lessons in leadership which corporations can benefit
from.
(Logo: http://www.prnasia.com/sa/2010/02/26/20100226198633.jpg
)
Toyota off the cliff?: Lessons in leadership
By Alan Pang, Director, Aon Consulting Global Research
Center
February 2010
Anne Ezal died on February 25, 2007, after the Toyota Camry she
was riding in accelerated over a cliff and crashed into the sea
below. Anne and her husband, Bulent Ezal, were headed to lunch at
the Pelican Point Restaurant in Pismo Beach, California. The
restaurant is located on the edge of a cliff, above the Pacific
Ocean, with the parking lot adjacent to the restaurant. Bulent rode
the brake as he approached a parking space and had come to almost a
complete stop, when the Camry suddenly accelerated, jumping a small
curb, crashing through a fence and over the bluff. The vehicle fell
70 feet to the rocks below, and turned over once, coming to rest in
the surf. Bulent later recovered but Anne died of her injuries.
(Note 1)
Similar reports, accompanied by waves of recalls by Toyota, have
become daily grist for media commentators. As a model in Lean
Production, People Involvement and Customer Loyalty, Toyota has
fallen off its pedestal in just a blink of an eye.
The roots of Toyota's culture are under challenge and people
question whether their admiration of Toyota's path toward
excellence was misplaced. Recently, public criticism has focused on
complaints of too much computerization, problems with global
sourcing, and the effects of Toyota's single-minded pursuit of
becoming the world's largest automaker. In fact, the recent
criticism of Toyota in these three areas demonstrates how
leadership holds the keys to success, and failure, to
organizational transformation.
New technology and leadership
Under the leadership of Fujio Cho and Katsuaki Watanabe,
Toyota's Chairman and Vice Chairman respectively, Toyota has
transformed its principle of using "only reliable, thoroughly
tested technology that services your people and processes." Both
executives steered Toyota in new directions while trying to
maintain the corporate culture that underpinned its success. Cho
was a strong advocate of environmentally friendly automotive
technology, such as the hybrid-electric Prius (Note 2), and led the
company's effort to position Toyota as a market leader in this
field. Watanabe, for his part, spearheaded Toyota's efforts to
increase capability for building large gas-guzzling cars and small
trucks in pursuit of increased US market share. (Note 3)
Toyota's recent strategy to become the world's number one
automaker has been underpinned by using new know-how, new
technology and new materials to improve, perfect and break through
auto design and manufacturing. However, the strategy also required
that Toyota shifted its focus from manufacturing engineering and
built-in-quality toward research and development and product
design.
Simply put, when a company shifts its focus from lean production
to technology-innovation, there is an embedded obstacle - culture
change. On the one hand, the essence of lean production dictates
the elimination of waste. On the other hand, the uncertainties in
new product development require that the manufacturer build in
redundancy to manage the risks of the unknown and ensure a high
level of safety. Trying to balance lean production with the need
for redundancy is a difficult act that requires the leadership to
be instrumental in making key decisions as well as leading and
managing the change.
Global sourcing and leadership
Toyota's accelerator problem brings to the fore an issue related
to product development - that of global sourcing and managing
global suppliers. Toyota's American parts supplier, CTS,
manufactured the pedals fitted in the recalled cars. Cars fitted
with pedals made by Denso, Toyota's Asia parts supplier, did not
need to be recalled. (Note 4)
Regardless of where a supplier is located, automakers worldwide
put a new product through a rigorous process of "problem
prevention" before it is finalized and launched. After the new
product hits production, there is another lengthy process of
"problem resolution" that addresses product design defects.
Based on the level of cost of the parts and components plus the
level of complexity, suppliers go through additional screening
based on their categorization into four alternative groups:
Sourcing Categories (Note 5)
Accruing Returns Relationship
(low cost and high Management
complexity) (high cost and high
complexity)
Low Hanging Fruit Strategic Sourcing
(low cost and low (high cost and low
complexity). complexity)
These measures are the dynamics in the quality control world
governing the quality of parts and components and their alignment
with the final vehicles. Companies, such as Toyota, that focus on
lean production, would prefer to work with suppliers in the lower
left quadrant.
Most global automakers have invested heavily in the past decade
to improve their global sourcing / supplier management system for
alignment with their product development and production. The need
for global sourcing was highlighted during the 2007 earthquake that
occurred off the coast of Niigata prefecture. The earthquake
damaged a major engine-parts manufacturer, forcing production to
halt at the plants of Japan's 12 automakers, including Toyota. The
episode revealed the fragility of Toyota's famous and much-copied
"just-in-time" production system. (Note 6) The event led to the
vast expansion of Toyota's supplier base worldwide soon
afterwards.
At the same time, as product design becomes more sophisticated
and high-tech, vehicle manufacturers are forced to delegate more
design details to suppliers. The vehicle manufacturers must rely on
their suppliers for the necessary technical expertise due to the
part's complexity and sophistication. For those vehicle assemblers
that have been used to managing suppliers in the quadrants of low
return or low complexity, another culture shift is necessary, one
that comes from within but hits back from outside.
Dedicated to the belief of "be more like the tortoise than the
hare," (Note 7) Toyota is confronted by a crossroad's choice. Which
should it pursue: a newer and more innovative technology; or a more
reliable and error-proof design and production? Toyota must also
decide if it wants:
-- Less expensive and faster go-to-market products or safer ones
with
more complex testing and validation; and
-- More revolutionary and eye-catching technology breakthrough or
more
quality through continuous improvement and
attention-to-details.
Toyota's decisions on strategic positioning impacts its
cooperation with suppliers. The suppliers' original alignment of
competitive advantages, core capabilities and value propositions
needs to change along with that of Toyota's. Such changes,
unavoidably, will be reflected in vehicle quality, customer
satisfaction, and even customer safety.
Some would view this as a by-product of the vehicle maker's
strategic move directed by its leadership. Others think the
leadership should consider such impact as part of the change
management alongside strategic planning shifts. Whatever it is, the
key is the alignment, especially with corporate culture, people
capabilities, acceptance of stress and pressure, and the ability to
coordinate and change.
World No. 1 and leadership
When the uncontrolled acceleration problems metastasized into
the greatest calamity Toyota had experienced in its 73 years, the
new president (Akio Toyoda) virtually disappeared from view until
Feb. 5th's suddenly convened press conference. According to
Japanese reports, even the day before the press conference, Toyota
executives were more concerned about keeping their president
quarantined from the safety problem than using him to address it
effectively. Kyodo News Agency, citing a person close to Toyota
senior managers, said they were "looking for ways to handle the
matter without damaging the president."
Even after Toyota had suspended US production of eight models,
company officials "continued to emphasize that it was not serious
problem that required the appearance of the president." A Transport
Ministry official said: "It's hard to believe this is the global
Toyota." (Note 8) Here, the embedded Lean Production culture of
"stopping to fix problems" (Note 9) also fueled the fire as it
caused panic among customers who did not understand that "suspended
US production of eight models was not a serious problem."
Obviously, inside Toyota there is some confusion about what is
going on and what the next step is.
During the past decade, Toyota has aggressively expanded into
China, the Czech Republic, France, Poland, Russia, and the US by
setting up assembly plants, parts and components supplier bases and
engineering entities. (Note 10) During the past five years, Toyota
was also busy changing its leadership. A look at Toyota's financial
indicators (especially related to Human Capital Market Value, Human
Capital Revenue and Human Capital Value Added), (Note 11) shows
clearly that Toyota has undergone major changes.
Even though Toyota set its ambition to become the world's No. 1
automaker decades ago, the pursuit of that goal had been low key
until 10 years ago. The company focused on standardization,
continuous improvement, just-in-time, built-in-quality and people
involvement. It expects that by so doing, it would ultimately
achieve its long-term ambitions to be Number One.
This low key and risk-averse approach also was reflected in the
way Toyota entered the US market. While other Japanese
manufacturers boldly leapt in with their own manufacturing
facilities, Toyota tested the waters first by setting up a joint
venture manufacturing facility with General Motors. It established
its own plant only after gaining the experience and establishing
the confidence necessary to go it alone. Toyota then copied this
approach when it entered the China market. Through its cooperation
with FAW and Guangzhou Automobile, Toyota was able to gain
experience and quickly catch up with such "early birds" as
Volkswagen, General Motors, and Honda.
When the American auto giants started to falter, a unique
opportunity to more quickly achieve its ambitions to be No. 1
presented itself to Toyota. At the same time, however, the company
was confronted with a hard choice. The path to high growth required
common product platforms, multiple models, faster facelifts, new
launches, reliance on new technology and emphasis on innovation.
All these initiatives exerted pressure on Toyota's Lean Production
culture - "waste reduction, process stability, being more like a
tortoise than the hare". (Note 12)
The new leadership certainly has felt the pressure. It is the
responsibility of the leaders to sort out the alignment and
coordination between strategic direction and operating model; their
new competitive advantage and their deeply rooted company culture;
the national culture at the headquarters' location and customer
behaviors in overseas markets; hardcore lean brown fields in its
historical strategic markets, and the newly set up green fields in
the emerging markets.
Leadership will require wisdom to arrive at a sound solution.
Nevertheless, we can place trust in a Toyota that has during the
past seven decades evolved from an automatic loom maker in rural
Japan to become the world's No. 1 automaker. Its history displays
the strengths of this impressive organization. Toyota has
repeatedly exhibited a bold vision, starting from its founder's
shrewd observation of mass production's weakness to the company's
dedication to lean production systems rooted in people involvement.
It launched into the western markets assisted by the two oil
crises, and familiarized itself with the ways of a global operation
by stitching up a joint venture with the incumbent world No. 1.
In Toyota there is no word for "problem"; rather there are
"opportunities for improvement." Hopefully, the recall crisis will
be treated once more as an opportunity to align its lean production
culture and its operation excellence capabilities with its desire
to leverage new technology; to continue sourcing from the globe
while continuing to stay on the No. 1 pedestal. A transformation
already is apparent. Toyota has become less defensive and has
responded quickly to new complaints of defects. Leadership is no
longer absent and now appears to be leading from the front.
For HR professionals, this is also a great opportunity for to
observe how a non-western world-class organization can turn itself
around by its leadership's wisdom in crisis and change
management.
Never again will Anne Ezal's tragedy happen. When someone is
stepping on the brake for a complete stop while facing the sea on
the edge of a cliff, what he or she can expect is to get out the
parked car safely and be greeted by the sea breeze and an enjoyable
lunch.
Notes:
1 Don Slavik, "Toyota SUA Victims Call for Comprehensive
Recalls," PRNewswire, Jan. 27, 2010,
http://www.prnewswire.com/news-releases/toyota-sua-victims-call-for-comprehensive-recalls-82798682.html.
2 "Over 4,000 Japanese, 61 Foreigners Picked for Fall
Decorations", Japan Today, 3 Nov, 2009.
http://www.japantoday.com/category/national/view/over-4000-japanese-61-foreigners-picked-for-fall-decorations.
3 Jorn Madslien, "Toyota scion to revive prudent culture," BBC
News, June 23, 2009, http://news.bbc.co.uk/2/hi/business/8114381.stm
4 "Repairing Cars and Reputation," The Jakarta Post, Feb. 5 2010
http://www.thejakartapost.com/news/2010/02/05/editorial-repairing-cars-and-reputation.html.
5 The 4 Quadrant categorization of suppliers has its source in
General Motors University's Worldwide Purchasing Global
Symposium.
6 Kwan Weng Kin, "Recall Fiasco Puts Brakes on Firm's Growth,"
The Straits Times, Feb. 5, 2010. (Document
STIMES0020100204e6250000r-Dow Jones Factiva.)
7 Jeffrey K. Liker and David Meier, The Toyota Way Fieldbook,
McGraw Hill, 2006.
8 Peter Alford, "Oh, What a Failing," The Australian, Feb. 8,
2010,
http://www.theaustralian.com.au/news/features/oh-what-a-failing/story-e6frg6z6-1225827609041.
9 Jeffrey K. Liker, The Toyota Way, McGraw Hill, 2004
10 "History of Toyota," Toyota's corporate website, http://www2.toyota.co.jp/en/history/2000.html.
11 Competitors represented by Ford, Honda, Hyundai and
Volkswagen; data source: http://finance.yahoo.com:
* Human Capital Market Value = (Market Value - Book Value) / No.
of
Employees
* Human Capital Revenue = Revenue / No. of Employees
* Human Capital Value Added = EBIT / No. of Employees
12 Jeffrey K. Liker and David Meier, The Toyota Way Fieldbook,
McGraw Hill, 2006.
For more information about Aon Consulting's capabilities and
experience in leadership development, please contact:
Alan Pang
Director
Aon Consulting Global Research Center
[email protected]
Tel: +65 6239 8821
SOURCE Aon Consulting Global Research Center