Toyota’s "Acceleration" Problem and What It Means for You

Until the recent debacle over unintended acceleration, Toyota enjoyed the rewards of being a stellar global brand — a societal brand, in fact (see newsletter Issue Four) — that could do (almost) no wrong. It was admired for its business methods — the famed Toyota Production System — as well as for its fine cars. It was a how-to-do-things-right super star.

The Wall Street Journal recently ran a revealing article entitled Inside Toyota, Executives Trade Blame Over Debacle. The article states that when Mr. Toyoda took the top job last year, he inherited a company "weakened by non-family predecessors who sacrificed quality for faster growth and fatter margins." The problems arose, he said, when "some people just got too big-headed and focused too excessively on profit."

The Journal article went on to say that a week earlier, Jim Press — once the top Toyota executive in the U.S. — issued a statement declaring that "The root cause of [Toyota’s] problems is that the company was hijacked some years ago by anti-family, financially oriented pirates." Those executives "didn’t have the character to maintain a customer-first focus."

Vroom, vroom!

Toyota’s acceleration problems started long before they reached the gas pedal. They started when management decided to accelerate growth, both top-line growth and margin growth. In scientific terms, what does acceleration produce? Velocity. And what happens when velocity kicks in? Control difficulties. Enough said.

 In Toyota’s case, the acceleration debacle is poetic. Toyota’s slogan isMoving forward, which they — not just their vehicles — did, in no uncertain terms. The automotive analogies are many ... hitting a wall, crashing, spinning out, etc. But that’s not the main point of this newsletter. 

What matters most is knowing how to avoid Toyota’s acceleration problems, before they occur. 

We have met the enemy ...

… And they are us.

All companies wrestle with two siren songs: One, the song of customers who call for maximum value (a great experience including products and services); two, the song of investors who call for maximum wealth (return on their capital). While these two siren songs can peacefully co-exist, they rarely do. The voice of one usually overshadows the voice of the other. In Toyota’s case, the investors’ song finally won out, seducing management into a state of "acceleration" that began to erode the company’s legendary commitment to the customer.

There are many "Toyotas" out there. Fine companies who, for a variety of reasons, choose to put wealth creation before value creation. Who succumb to goals that, unwittingly, undermine their core integrity. When Toyota decided it wanted to be the largest automotive company in the world, as a way to increase profits (and to be able to have bragging rights), management started making choices that would accomplish that goal. At the same time, the company pushed for margin improvement — also, to drive profits. 

Those two decisions produced a perfect storm, putting Toyota on a trajectory that required fateful trade-offs. People have suffered. The brand has suffered. And, most ironically, the stock has suffered. There are no winners here.

How to avoid "acceleration" problems

 Unfortunately, when acceleration is largely financially motivated, companies risk losing the economic and social power inherent in their hard-won market franchises. In turn, savvy competitors exploit the disequilibrium that follows. Such companies are indeed their own worst enemy.  Avoiding Toyota’s fate comes down to three simple imperatives. Call them the 3Cs:

• Customers: Creating value for customers, giving them what they need as well as what they want, governs business decisions. That doesn’t mean giving away the store. It simply means honoring, above all, the people who are paying the bills.
• Character: Follow Jim Press’s dictum: Have the character — the guts, gumption, courage, integrity, even the audacity — to keep a customer-first focus. It won’t always be easy; but it will enable you to sleep at night and will keep your franchise secure.
• Control: Put policies, processes and practices into place that make it nearly impossible to cut corners or make short-term decisions that will undermine the long-term health of your company.

True confession

I’m a fan of Toyota’s and believe they’ll recover and thrive. Further, I believe that great organizations – Toyota still qualifies – only become great by surviving crises and learning from them.

As management principles go, acceleration isn’t a bad idea, as long as it’s fueled by a desire to create value for customers first and wealth for investors second.

Do you have an opinion about Toyota’s current challenges? Think they’re "too little, too late?" Join the conversation by posting your views on my blog.  

Enjoy the drive.

P.S. What road is your company on? Contact me at lackerman@theidentitycircle.com and I’ll send you a list of seven ways to determine whether your organization may be in acceleration overdrive.

A Read More feature of Identity Insights

Discover How To ...