Tom Ehrenfeld: What is to be learned from Toyota now? By Tom Ehrenfeld, author of The Startup Garden and A Leader’s Study Guide To The Gold Mine – Last updated: Friday, January 29, 2010 – Save & Share – Leave a comment

Toyota is making news for its product recalls and for suspending production on the bulk of its models to work out its problems. Naturally most public accounts focus on the question of what Toyota did wrong. I think this is a very challenging question, and perhaps not the most important moving forward. I would prefer to ask that you reflect on what remains to be learned. Given the news, could one conclude that the company has reached the limits of its potential? Has the full promise of its true practice been sufficiently uncovered and shared yet? Most of all, what are the key questions we should be asking right now? What can be learned from Toyota as the company moves forward from its current state?

Art Smalley Response:

Tom Ehrenfeld asks that I not reflect on where Toyota went wrong. However it is difficult to answer his series of five questions without at least touching upon this topic at least tangentially. I will rephrase and order Tom’s questions down below so that I can respond to them one by one from my point of view.

Q1. What remains to be learned from this situation?

I’d say a lot still remains to be learned. With respect to Toyota’s quality problems the seeds in my opinion were planted in the mid 1990′s when the company at least behind closed doors started talking about expanding global market share significantly and eventually surpassing GM as the top volume selling vehicle manufacturer in the world. After just over a decade of rapid expansion Toyota achieved its goal just in time (no pun intended) to see its precious reputation take a dive in quality and other dimensions. I am somewhat surprised that Toyota’s current problems did not surface earlier. The fact that they did not is testament to the strength of the organization. However no company is immune to the pitfalls of rapid growth and expansion. Personnel development did not keep pace with the company growth and things slipped through the cracks. Due to the rapid pace of growth larger numbers of contract engineers were employed than ever before. Software modeling also replaced destructive testing in order to shorten development time lines and to reduce costs. That may not be the case on the sticking pedal problem but it applies to other issues not mentioned as much in the press. The big thing in my mind that remains to be seen however is how well Toyota learns and rebounds from this debacle. What has always separated Toyota in the past is not that they get so many things right the first time but that they keep at it and learned and improved. This quality challenge however is a new type of problem on scale they have not faced in the past.

Q2. Has Toyota reached the limits of its potential?

I don’t think so. The company has deep pockets and is vastly talented. I think the size of the company has made it unwieldy and difficult to manage especially with all the overseas growth. The current President Mr. Akio Toyoda has his work cut out for him in refocusing the company on the “back to basics” campaign that he started. Time will be required to tell if the company can absorb the message and return to former levels of glory. Toyota still had lots of room for improvement even when they were making $15 billion in profits and were still respected for quality. Kaizen is endless as the saying goes.

Q3. Has the full promise of TPS/Lean been sufficiently uncovered and shared yet?

Not even close. From the 1970′s forward TPS/Lean has been characterized as either tools (e.g. kanban or standardized work), kaizen events, a system, DNA type rules, value stream mapping, and a host of other things. None of this is wrong just none of it comes close to adequately explaining the whole of Toyota’s system. We may be scratching the surface on the manufacturing side but not much progress has been made in terms of people development, production engineering, supplier relationships and development, or product development for that matter. Like the iceberg analogy the visible parts of the system (the factory and people) are fairly well recognized however the stuff under the water (culture and non-manufacturing departments) are not well understood. Since a lot of the key stuff is centralized in Japan I suspect it will remain shrouded in mystery for sometime.

Q4. What are the key questions we should be asking right now?

Of the top of my head I can think of a couple. How do you grow rapidly and avoid the problems that Toyota ran into is a good one for starters. Secondly Taiichi Ono always said that it is easy to make money in a good economy but TPS was designed to be flexible enough to make money in a recession like the 1973 oil shock that racked the world. Toyota was one of only a few companies that made a profit in Japan that year. So why did Toyota’s system fail it in this recession? What did management not see coming? Why did they not react faster? The main question is though how will Toyota get to root of the problem and prevent recurrence in the future? Getting to a root cause may not be the hard part of their recent quality problems. How to prevent them from recurring again is the more difficult challenge. For arm chair critics pointing out that TPS/Lean isn’t working so well for Toyota the question is what alternative improvement system do you propose and why is that any better?

Q5. What can be learned from Toyota?

There is still plenty. As we speak about Toyota’s design glitches and quality problems they are still an impressive company. A former colleague is now general manager over engine production in Kamigo Plant where Taiichi Ohno once perfected his system. Last time I checked the engine plant’s latest line was operating around 5 ppm to the vehicle assembly plant. Scrap rates on the connecting rod line hovered around 0.05% during the day I visited. Most companies would be glad to have that level of performance. I actually think the manufacturing part of Toyota’s system is still doing quite well. Bigger questions and learning points remain for people development, supplier development, and improving product development. Perhaps Toyota’s struggles will help us all learn something in these areas.