How Toyota Became #1

A Live Case on Superb Strategy, Time Span and Leadership by David Magee

How to Dominate an Industry by Focusing on the Long Term

Everyone knows that Toyota has had an amazing twenty-five- year run, rising from a humble Japanese start-up to become a thriving global giant. But how did it pass Ford and GM en route to establishing itself as the world’s largest auto manufacturer?

The car sector is getting a lot of press these days – particularly in regards as to how “the big three” North American brands are seeking public funds to help sustain a sector whose shrinking markets and possible bankruptcy or extinction of 3 global North American car companies has dramatic and worldwide implications. One of the more common reasons given for the current state of the industry is the inability of large and complex companies to adapt quickly enough to their customers’ changing tastes and needs.

It is with this state of the industry in mind that one can learn a valuable lesson from David Magee’s “How Toyota Became #1.” Magee maintains that Toyota has done so by ensuring that it truly stays connected with its customers from a long term perspective.

There are many Toyota programs that were involved in this transformation but one consistent theme is Toyota’s focus on the long term and the ability to jump beyond the current trends. With the possible near term bankruptcy of GM and Chrysler it is apparent that the short term focus of these companies has contributed to their difficulties. Although Toyota recently experienced its first financial loss in 70 years it is in a very strong position to survive the recession.

How Toyota Became # 1 by David Magee, 239 pages, ISBN 978-1-59184-179-1

What we can all learn from the strategies that have made Toyota the world’s best car company?

David Magee interviewed current and former Toyota executives in the United States and Japan in order to understand the “Toyota Way” straight from the people who live it every day. The result is a nicely crafted synthesis of theory and practice. Chapter topics include such Toyota principles as kaizen; teaching employees to think; empowerment and serving the customer.

Each chapter includes examples of how Toyota has implemented their principles and also gives a direct comparison to companies such as Ford and GM. These comparisons illustrate the differences between the companies and the results each achieved. The author allows the facts to speak for themselves, but occasionally interjects some personal opinions into the comparisons.

Magee explains the surprising power of Toyota’s corporate culture, which includes:

• • Focusing on the long term: While most companies worry about the next quarter, Toyota is thinking about the next quarter century.
  • Jumping beyond the current trend: When GM and Ford were still ramping up their gas-guzzling SUVs, Toyota was very quietly taking a huge lead on hybrids.
  • Making quality everyone’s responsibility: Toyota expects people at every level to think and act like quality-control inspectors.
  • Managing individual strengths: Toyota is revolutionizing the way people are managed, to maximize their strengths instead of criticizing their weaknesses.

Favour Long-Term Strategies Over Short-Term Fixes

While most companies worry about the next quarter, Toyota is thinking about the next quarter century. Chapter 7 of the book focuses on the lesson of favoring long-term strategies over short-term fixes. One example is the rise of the SUVs and large trucks.

In the 1990s and throughout the first part of this century, the Big Three American car companies based their businesses on the SUV and big truck boom — a decision based on the fact that gas was cheap and plentiful at the time.

Humvees, full-sized pickups, and Chevy Suburbans — with their single digit MPGs — were hot vehicles for people who didn’t worry about future gas shortages and who did not understand the global warming implications.

Sales soared. Ford Motor Company even based its turnaround to profitability plan on SUVs and trucks.

Toyota, however, chose a different path. Instead of building low-mileage vehicles and coasting to “victory” on short-term sales, the company quietly invested over $1 billion dollars in developing a high-mileage, fuel efficient vehicle based on the fact that fuel shortages would happen again.

Toyota uses a 20 year planning system that sacrifices quick and potentially short lived success over a long term steady growth plan of providing the cars that customers want. The result was that the big three made large profits during the SUV boom which was followed by numbing losses when the customers demanded more compact and environmentally friendlier cars. The “big three” over invested for the flavour of the day and Toyota invested for the longer term. Toyota owns almost all of its hybrid technology and is well positioned as the leader for alternative technology and products for the twenty-first-century. Magee states that GM on the other hand, reportedly poured almost as much into the Hummer brand as Toyota did into the Prius and hybrid project, all seemingly because SUVs were trendy at the time.

Magee contends that a short-term focus seems to make sense for individuals whose bonuses are tied to increased stock prices and quarterly and annual profits. However cashing in on short term trends sets up a company for long term problems and too many CEOs are looking only for short-term results. The “Toyota Way” seems to result in stable and sustained growth based on long-term decision making.

For more information on why a longer view is required by executives please click here: Leadership is all about looking in the future. Time span how it applies to the decline and rise of corporations.

In conclusion, I strongly recommend that this book be read by young or seasoned business people alike and it is a must read for those who want to be involved in strategy and leading people. While some may think that “How Toyota Became #1” is only worthwhile for those in the car and/or manufacturing sectors, the truth is that the power of its stories and practical lessons can be applied to all industries as well as to any company regardless of their size, age, geographic region or stage of growth. Furthermore its insights are relevant for all C-level executives. For example, company leaders in charge of marketing, finance, operations and human resources can all learn about the importance of strategy, organizational design, time span, leadership and processes to their company becoming a dominant player in their industry.

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