TECH TALK: Good Books: The Toyota Way (Part 2)

In November 2003, Business Week had a cover story with the question: Can Anything Stop Toyota?

Toyota combines the size, financial clout, and manufacturing excellence needed to dominate the global car industry in a way no company ever has. Sure, Toyota, with $146 billion in sales, may not be tops in every category. GM is bigger — for now. Nissan Motor Co. makes slightly more profit per vehicle in North America, and its U.S. plants are more efficient. Both Nissan and Honda have flexible assembly lines, too. But no car company is as strong as Toyota in so many areas.

In the past few years, Toyota has accelerated these gains, raising the bar for the entire industry. Consider:

— Toyota is closing in on Chrysler to become the third-biggest carmaker in the U.S. Its U.S. share, rising steadily, is now above 11%.

— At its current rate of expansion, Toyota could pass Ford Motor Co. in mid-decade as the world’s No. 2 auto maker. The No. 1 spot — still occupied by General Motors Corp., with 15% of the global market — would be the next target. President Cho’s goal is 15% of global sales by 2010, up from 10% today. “They dominate wherever they go,” says Nobuhiko Kawamoto, former president of Honda Motor Co. “They try to take over everything.”

— Toyota has broken the Japanese curse of running companies simply for sales gains, not profit. Its operating margin of 8%-plus (vs. 2% in 1993) now dwarfs those of Detroit’s Big Three. Even with the impact of the strong yen, estimated 2003 profits of $7.2 billion will be double 1999’s level. On Nov. 5, the company reported profits of $4.8 billion on sales of $75 billion for the six months ended Sept. 30. Results like that have given Toyota a market capitalization of $110 billion — more than that of GM, Ford, and DaimlerChrysler combined.

— The company has not only rounded out its product line in the U.S., with sport-utility vehicles, trucks, and a hit minivan, but it also has seized the psychological advantage in the market with the Prius, an eco-friendly gasoline-electric car. “This is going to be a real paradigm shift for the industry,” says board member and top engineer Hiroyuki Watanabe. In October, when the second-generation Prius reached U.S. showrooms, dealers got 10,000 orders before the car was even available.

— Toyota has launched a joint program with its suppliers to radically cut the number of steps needed to make cars and car parts. In the past year alone, the company chopped $2.6 billion out of its $113 billion in manufacturing costs without any plant closures or layoffs. Toyota expects to cut an additional $2 billion out of its cost base this year.

— Toyota is putting the finishing touches on a plan to create an integrated, flexible, global manufacturing system. In this new network, plants from Indonesia to Argentina will be designed both to customize cars for local markets and to shift production to quickly satisfy any surges in demand from markets worldwide. By tapping, say, its South African plant to meet a need in Europe, Toyota can save itself the $1 billion normally needed to build a new factory.

Thats Toyota. The foreword by Gary Convis, Managing Officer of Toyota and President, Toyota Motor Manufacturing, Kentucky, in the book captures the essence of the organisation: The Toyota Way can be briefly summarized through the two pillars that support it: Continuous Improvement and Respect for People. Continuous improvement, often called kaizen, defines Toyotas basic approach to doing business. Challenge everything. More important that the actual improvements that individuals contribute, the true value of continous improvement is in creating an atmosphere of continuous learning and an environment that not only accepts, but actually embraces change. Such an environment can only be created where there is respect for people hence the second pillar of the Toyota Way.

Tomorrow: The Toyota Way (continued)

TECH TALK Good Books+T

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.