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Sunday, September 19, 2004

Mighty Toyota's Growing Pains via CE

The latest numbers give credence to a growing chorus of predictions that Toyota will capture 15 percent of the global auto market by 2015( widely called 15 x 15 within Toyota), dethroning General Motors as the world’s largest automaker. Toyota expanded global sales by 9.9 percent for the fiscal year ended in March, finishing in a statistical dead heat with Ford and narrowing the gap with GM.It even defied the adverse effect of a strong yen and increased net earnings to $10.2 billion, making it inarguably the most profitable car company in the world. Toyota has been able to stage its astonishing assault on world markets by maintaining ruthless quality and cost controls. In addition to being the most profitable automaker, it consistently wins top quality awards from J.D. Power & Associates. To Toyota President and CEO Fujio Cho and other executives, the guiding principles have always been clear. They needed only to keep implementing concepts pioneered by the late blunt, flamboyant engineer Taichi Ohno such as kaizen (continuous improvement), just-in-time delivery and other elements of Toyota’s “lean” manufacturing system.But while the rest of the world fears Toyota, insiders are concerned about the company’s ability to manage its growth and maintain the quality of its products. The company now has 260,000 employees in 26 countries. But it has not yet been able to develop the sophisticated decision-making balance between headquarters and local operating units that some Western multinationals have achieved. As a result, the company can either centralize decision making in Japan or allow it to devolve to U.S. or European managements. There seems to be little middle ground.Extensive computerization of the entire car manufacturing process, from design to production and distribution, is one of the methods that Toyota is adopting for quality control and cost reductions.The twin goals of improved quality and cost reduction, coupled with the demand for raising productivity, are imposing pressures on employees and managers that they haven’t experienced in the past.The company also needs more top people with international savvy, because centrally driven design decisions and management style are increasingly less effective. In everything from research to product planning, from manufacturing to distribution, the old model of making decisions in Japan and then rolling those decisions out with only minor modifications for regional tastes doesn’t work as well as it used to.It’s clear that Toyota is trying to cope with the problems of becoming a more mature multinational rather than being an upstart challenger. Toyota, has not yet been able to place a single non-Japanese on the board of directors even though 60 percent of its sales are outside of Japan. Cho,Toyota's CEO is keenly aware of the challenges of managing a global company. “Toyota’s weakness, if you will, is related to information,” he says. “Many of our vital functions are concentrated in Toyota City. This could mean that we are late in getting wind of important information. In the IT age where information is abundant, we must be extra careful about what is vital information and what is not.

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