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Saturday, July 14, 2007

The Amazing Toyota

Last week had been very hectic with little time to update the blog. On the flight to Singapore from SFO yesterday night read the current issue of HBR focussing on managing business for the long term, It’s definitely a collector’s issue. More of it later. Of all that I read there, I find this
amazing interview of Katusaki Watanabe, the President & CEO of Toyota to be amongst the best – very detailed and quite insightful. Toyota is one of my favorite business success story. It is , arguably, already the best carmaker on the planet.

HBR notes that Toyota’s penchant for measuring everything—even the noise that car doors make when they open and close as workers perform their final inspections on newly manufactured automobiles is a phenomenon known as the Toyota Way. In its 70th year since founded and in 50 years since it started exporting cars to the United States, and a decade since it launched the world’s first commercial hybrid, the Prius, it is all set to sell 9.34 million vehicles in 2007, to overtake America’s General Motors and become the world’s biggest automobile manufacturer. Toyota is also the most profitable car manufacturer: In the financial year that ended in March 2007, it made a profit of $13.7 billion, whereas GM and Ford reported losses of $1.97 billion and $12.61 billion, respectively, in 2006. In fact, Toyota’s market capitalization on May 2007 of $186.71 billion—was more than one and a half times of the combined value of GM, Ford & Dailmler Chrysler. Look at how long Toyota has come. Jagdish Seth recently pointed to how the US automobile manufacturers lended their distribution arms to the Japanese decades back thinking that these low cost automobile manufactures manufacturing small cars can never make a dent in their traditional business. Toyota’s philosophy of jojo: “slowly, gradually, and steadily” has indeed helped it win the battle.
Toyota does not embrace the principles taught in business schools globally as it believes that mindset matters more than the tools. Today their hyper growth is creating issues internally – on quality, talent to keep pace with the company’s rapid expansion and with technological change. I have pointed to Toyota’s growth pains earlier.
Toyota’s innovation & growth is phenomenal. Look at this : Toyota has added the capacity to produce 3 million automobiles over the past six years. Perhaps the only other automaker to boost production that fast, according to industry experts, was the Ford Motor Company, under Henry Ford in the early 1900s. Watanabe San talks about Toyota’s new plant in Takaoka – the fastest production line where lead times, logistics and assembly time shall be cut in half. Through process innovations and automation involving robots, the line will move 1.7 times faster than seen in any other Toyota shop around the world. Painting times stand reduced by 40%. The two lines shall throw out 16 models as against 4 or 5 models from three lines earlier..
Incremental improvements or radical reforms – what’ best for Toyota to sustain growth ? - both says Toyota. Watanabe San says that Toyota’s future will depend on its ability to strike the right balance - between the short term and the long term; between being a Japanese company and being a global company; between the manufacturing culture of Toyota City and the design culture of Los Angeles, where some of Toyota’s cars take shape; between the cautiousness of Toyota’s veterans, who are worried about growing too fast, and the confidence of its youngsters, who have seen only success.
Environment, energy, safety and evoking emotion & comfort are the key factor in Toyota’s future scheme of things. Where all this would end? Of course, in Toyota’s dream car. In Watanabe San’s dream it would be a vehicle that can make the air cleaner than it is, a vehicle that cannot injure people, a vehicle that can make people healthier the longer they drive it, a vehicle that can excite, entertain and evoke the emotions of its occupants, a vehicle that can drive around the world on just one tank of gas!!
Watanabe San’s philosophy and by extension of that of Toyota in managing for the medium and long term is indeed very interesting – some components of the strategy has clearly helped Toyota establish global leadership

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