Toyota’s Once Unbeatable Business Model Now Anything But
What Drove Toyota Management's Decisions?
Shocking, yes? But no less shocking than Toyota, the world-class manufacturing quality expert, recalling millions of cars across its product lines. Three generations after its founder created Toyota on a philosophy that built quality into every step, it turns out that Toyota’s quality has been steadily eroding.
Today, Toyota’s quality issues are deep and systemic.
After all, the company’s problems:
- Involve multiple components, vehicles and years of manufacture.
- Create dangerous safety issues – failing brakes and uncontrollable self-accelerating gas pedals.
- Were surfaced years ago yet are leading to recalls only under regulatory pressure.
- May not have had the attention of top management until after all hell broke loose. (Toyota’s CEO just recently committed to creating a senior level “quality committee” to look into the problem.)
- May not yet be truly resolved. While the accelerator fix has been identified, it’s unclear whether there’s an electrical system glitch causing some uncontrolled accelerations.
- Are not being presented truthfully. Toyota’s leaders make false statements that put Toyota in a better light, only to rescind these comments when a government agency points out the truth.
The winning value promise
Toyota’s compelling and unique value promise propelled Toyota to surpass GM as the world’s largest automobile manufacturer: With Toyota, you can have comfort without frustration, a welcomed relief in an industry formerly fraught with reliability issues from all but Honda.
Leveraging its quality advantage, Toyota built a line of cars from economy to luxury that reduced the frustration of car ownership (Lexus versus Mercedes/BMW and Camry versus GM/Chrysler/Ford brands). Its brands also increased comfort compared to Honda’s reliable line. The Prius extended Toyota’s brand promise into its hybrid engine cars.
The root cause of the Toyota’s quality problems
No one would expect 100% perfection on Toyota’s part. Suppliers and designs change, materials have defects, etc. in manufacturing companies. But quality issues in multiple parts and vehicles and a growing number of recalls over the years point to the deeper cause of Toyota’s quality issues.
New automobile component technologies (more electronic and less mechanical) should have led to new quality systems and far more careful attention to drivers’ experiences than Toyota provided. Whether it was over-confidence in its historical quality systems or pressure to keep production and profits rolling as demand grew, internal forces precluded a relentless drive to fine-tune internal systems to Toyota’s value promise as technology changed.
This drive – to align everything to the value promise while generating profitability – should be front and center in any strategic leader’s agenda. Instead, Toyota maintained its brand promise in external communications, but failed to align internal decisions with its value promise.
Another piece of evidence that Toyota lost an internal focus on its value promise comes in Toyota’s reactions to its quality issues. Toyota fixed new cars being produced without recalling cars in the field, delayed communicating quality issues to customers and regulators and made many misstatements to the public. Toyota’s historic value promise for sure didn’t drive these decisions. Rather, Toyota’s reactions have raised frustration and reduced perceived reliability of the Toyota brand, the opposite of its value promise.
The lesson
Growth often destroys brands. As companies get larger, C-Suite leaders lose the pulse of the business at the same time that communication channels to the C-Suite become convoluted or blocked. Growth and profits become aims, while delivering on the value promise becomes secondary or even forgotten. A disconnection arises – between what is promised and what is then delivered – that erodes brand equity.
Hopefully Toyota will learn the lesson that a business’ value promise must drive all internal actions and decisions. It will take an incredible communicator to instill a singular focus on the value promise all over again, a focus Toyota’s founder created and his son and grandson lost. Meanwhile, Ford and Hyundai are driving their cars and messaging right through the hole Toyota left in the market.
Do you regularly ask or hear in meetings, “What should we do in light of our value promise?” If not, make sure everyone in your organization knows your company’s value promise and get busy with alignment. Your Toyota moment may not be as public. But the lost reputation, revenue and profits will nevertheless be substantial.
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Hi Kay, I really enjoyed reading this, though in a bittersweet way, since I love the Toyota brand. One moral to the story is you can never rest on your laurels. I’ve been a loyal Toyota customer for years, but I started noticing chinks in their armor when I purchased a 2007 Camry. Nice car, but not as nice as the 2003 Camry I drove previously. Nothing major, but a few rattles here, a few inferior components there … and then I started hearing the same things from other Toyota customers. The meticulous follow up surveys Toyota badgered me for after a service call gradually disappeared. I saw a lot of cool automation with their website and email service updates, but the underlying commitment to quality was definitely not front and center in my user experience. You talk about singular focus – excellent, excellent point. When Toyota had it, they thrived. They need to get back to it asap.
.-= Brad Shorr´s last blog ..Good Marketing Intentions Are Not Enough =-.
Aloha Kay, I am a new reader, now twice to your blog via Fred Schlegel.
As Brad says, the Toyota story gets to me in an emotional way, for I’ve been their customer too, and had been part of The Ritz-Carlton Hotel Company when we initially pursued the Malcolm Baldrige National Quality Award: The Toyota story then was within the TQM/Deming primers on the shelf, given with the subtle international coaching that “the American arm of our company doesn’t know everything.”
Today, we ex-TQMers have all grown up, and the question is, what have we learned about the sustainability of good companies, and what it takes? I too think value alignment is the key; it is essential whether your company is big or small. Business enterprise is hard work, and it requires diligent focus and consistency, and the values which create and foster our “value proposition” must get our undivided attention. They are that “root cause” of so much.
I will be subscribing, eager to read more from you. Going to this link you offer next: Why you need a better business strategy today.
.-= Rosa Say´s last blog ..Let’s have fun with The American Twins: Caption the photo =-.
Brad,
Your experience as a loyal customer is really telling and reinforces my comment that Toyota should have been extra aware of customer feedback. It is really sad to see an icon exposed, although our culture has a tendency to do this to leaders. But I never thought that Toyota’s reputation was unfairly elevated as some rapid rise-terrible fall stories progress in our culture. Also, the issue is a global issue for the company and customer base, not something America is doing to Toyota. I know that profits and revenue are critical. But the companies that focus first on their value promise and build raving fans get all the profits and revenue growth they want. Toyota had this. Shame they lost it.
Kay
Rosa,
Welcome to the blog. Happy to learn from you too. You really understand the arduous road Toyota journeyed to build its reputation if you are from the TQM movement and worked with Ritz. I like your notion of “diligent focus and consistency.” Well stated. I like to use the word value promise versus proposition as the focus of the company as I think the word promise reinforces the notion of consistency. Proposition requires less emotional commitment in my mind at least. Have a good day. Kay
Very good point, about “value promise” versus “value proposition.” An effective language of intention is often much more emotional than intellectual.
.-= Rosa Say´s last blog ..Let’s have fun with The American Twins: Caption the photo =-.
What if your business got sick?…
Two mini stories today. One is about business plans (sorta) and one is about healthy people (sorta). The 1st story, with a moral thrown in I hired a coach who specialized in teaching better business planning a few years back, and I highly recommend it:…
A friend who runs a leading catering business in the Chicago area shared the following comment with me by e-mail. I share it with you my readers.
I think your closing is excellent, Kay. They failed on their value promise, but even worse, they did so with knowledge.
Growth most often does destroy brands, but greed seems to be the case here. The disconnect was caused by the C-Suite. A company that is built on a quality value promise must protect the quality conduit. The cold brutal facts have to be confronted an immediate action taken. The damage is to their credibility – which is long lasting, not to their quality control. You stated that well.
Furthermore, in today’s electronic age, how many e-mails, texts and tweets were issued from Toyota people about this problem. That is destruction from the inside. Joseph Schumpeter said that all businesses are doomed to fail. Toyota just accelerated that cycle. I look forward to your take on what they do to recover.
“A disconnection arises – between what is promised and what is then delivered – that erodes brand equity.” Well put. The isolation of leadership is a constant problem in corporations (and in politics). I like the idea that the value promise must drive all decision making. But sometimes making those decisions sometimes requires giving up a sale or skipping an entire product category when it doesn’t fit. Right now I think Apple is probably one of the best examples of this, avoiding markets where they can’t provide the experience they believe is necessary for their products.
.-= Fred H Schlegel´s last blog ..Is The American Dream Dead? =-.
Fred, You hit the nail on the head. To build a brand requires not doing, not just doing. So often leaders are attracted by financial potential of markets rather than thinking, “Is this consistent with my brand?” I feel that the scope of a company’s offering is one of its most strategic decisions. Too narrow and you’ve not realized the full potential of your brand. Too wide and you dilute it. K
Somewhere along the way I heard a definition of quality that I hope to paraphrase correctly here: “Quality is when the people feel free to tell the truth and the leaders believe them.” What’s implied in this definition, that perhaps has going missing lately for Toyota, is that the leaders respond to “the truth” with a generous and authentic spirit informed by the broad (public) trust they are given. Brand promise means “living the brand,” and in this case the leaders surely did not live the brand themselves. This is not an intellectual feat; it is a feat of human character. It will take Toyota a long time to live through this one because the erosion of apparent values, and therefore of trust, is so great. Too bad they didn’t make the choice to live the brand instead.
.-= Dan´s last blog ..On the Meaning of Self-Appreciation =-.
Dan, No surprisingly, your comment is very insightful. Toyota’s issues are not just about value promise, but the company’s values and its character. The first test of being a leader is being trustworthy and that works in both leadership vis a vis followers and leadership in a market. Thanks Dan for the insight. MK
We Toyota owners are disappointed by the obvious C Suite neglect and possible lying! You make some excellent points. However, if you visit the two local Toyota dealerships you will see a very visible commitment to quality and to the future. The physical plant investment alone speaks for itself. On the flip side, have you rented a Ford or Chrysler lately? It is my only opportunity to eye ball US car manufacturing quality and frankly they still have a long way to go to match Toyota quality. When quality factor differences are as obvious as how the dash board fits together –well I rest my case. No matter how much US car manufactures spend on advertising and no matter how much the US government assists US manufactures (and I believe they are out to get Toyota to give advantage to a company the US taxpayer now owns)… seeing is believing. Words and campaigns only last so long. I believe Toyota will get to the bottom of these short term issues. Bottom line- they are on solid ground for a Quality Future. See for yourself.
Jon, I can appreciate the feeling. When we love a brand, it’s hard when it falls short. Maybe you are right about the quality gap (I bought an Acura and it sure has quality issues, as in the windshield blades icing up precluding a clear windshield). If so and if Toyota’s C-suite changes, there is hope. I think your point about the local dealership is an interesting one. But even if they are best in the world at dealership management, delivering on the value promise requires alignment along ALL THE PARTS, from C-suite leadership to dealership performance. My heart goes out to the local dealership. They just invested millions of dollars in expansion but national data says that 27% of individuals currently shopping for cars and considering Toyota will no longer consider Toyota. That’s a 27% decline in revenue, right there through no fault of their own. Were I on the Toyota board, I’d ask for a change in leadership of the company. Best, Kay
This made me smile and hopefully after your last post it will do the same for you:
It’s people that give drinking a bad name.
Normally, a company will earn their reputation, but then they will rely on perception instead of what got them the reputation in the first place.
Mark´s last [type] ..Car Loan Calculator
That’s a great insight. What do you think leads them to forget the key success factors?
Very interesting subject Kay, brings to mind two concepts at play here.
The first comes from Joseph Pine’s work on consumers. What consumers want today is authenticity. With all the advertising and information overload, an easy way to compromise your customers is to not be true to yourself and your heritage, thereby repudiating that heritage. You can be a ‘real fake’ like Disneyworld, or you can be a ‘fake real’ like Universal Studios Walk, as long as you stay true to what that heritage says you are and people can trust your authenticity.
Pine’s three rules of authenticity:
1. don’t say you’re authentic unless you are
2. it’s easier to be authentic if you don’t say you are
3. if you say you are authentic you better be authentic
One can see how Toyota’s leadership has clearly compromised their authenticity. They have forgotten their heritage as building on quality. They have continued to proclaim their status as quality-concerned though their recalls contradict that and now with more revelations coming about its internal focus being lost, the public perceives the lack of authenticity. They have gone from a hugely success full company saying who they are and delivering on that promise, to not being who they say they are where quality is compromised, finally, to not even being true to themselves in not believing or committing to what they say they are.
The second thought comes from a program I watched some time ago (forgive me for not remembering the exact program) that talked about why smart people do stupid things. Often the pattern begins when they are faced with challenges or crisis and they manage to contain or survive the crisis. When this happens a number of times they begin to feel like they are invulnerable. The world tends to come crashing down around them when they don’t lake these challenges as a motivation for change and begin to believe they are infallible, from can’t be harmed by mistakes to can’t make a fatal mistake. Then comes the fall.
One can see quite a bit of Toyota in both these concerns.
Great comments Mike. Thanks. I had not drawn the connection to Pines work (I also loved his Experience economy), but the linkage is correct. You might like this week’s blog on Walmart, a company that I feel has lost its focus on its value promise — a focus that done powerfully makes you authentic because why you say you are the best choice is why you are the best choice–you over deliver on your promise in fact. Your second linkage reminds me of the hero story in all great literature–at the peak you are knocked down into hell, where you discover gifts you did not know you had only to return to earth with an ability to help/heal others. Some learn and become the hero, others remain in the fire until they find the gift. Thanks again. Do you blog?
I rather new to all this. I have only recently (matter of days) left my position in the federal government to try my hand at consulting work in business design and innovation. Last fall, as prep for starting consulting, I was dragged by friends kicking and screaming into twitter and creating my own blog, found here:
http://mikelachapelle.posterous.com/
After an initial flurry, I’m having trouble getting back to the blog mindset. But I will, I swear!