Back to Basics at Toyota

The first statement in yesterday's Wall Street Journal article summarized it well:

Toyota Motor Corp.'s incoming president, Akio Toyoda, has a sobering message for the giant company founded by his grandfather: It has gotten too fancy for its own good.

That's often a death nell for most companies.  Bloated bureaucracies, inefficient execution, convoluted decision-making, wasteful resource transfer... wait... that's starting to sound like the government.  The difference with Toyota is they are recognizing they have a problem, and they're taking action.  Action that doesn't require additional spending, raising taxes... or raising prices in their case.

Akio Toyoda is going back to the basics, and he started by going back to a basic concept that should be practiced on an ongoing basis in any organization: going to the gemba.

Akio Toyoda has long preached a traditional Toyota practice called genchi genbutsu, a leadership maxim that boils down to get out of your office and visit the source of the problem.  For the past year Mr. Toyoda has been practicing genchi genbutsu to quietly collect evidence that the company had strayed, according to people familiar with the situation.

So what did he find?  Features that have questionable fundamental value for the customer for one.

For example, the new Prius, launching this year, has an option for a solar-powered ventilation systm designed to keep the interior cool when parked.  Gizmos like these helped lift the car's retail price to an estimated $28,000.

And even the vaunted manufacturing operations had projects of debatable value.

Then there's the shabu shabu paint system.  To replace the traditional system of slowly dragging a car through a 115-foot-long bath of anticorrosion undercoating, Toyota engineers came up with a new process in which a part gets picked up by a robot arm, then swished around in a pool of paint, cutting the length of the line.

However, the new system costs roughly four times as much to set up as the traditional process, while producing what Mr. Toyota felt were minimal improvements in the quality of the paint job and its efficiency.

Perhaps most importantly is the pricing model, where Toyota taught us to price based on value, which is set by the customer and market and not the manufacturer.

Toyota executives reasoned American consumers would be willing to pay a premium for a Toyota - a change from a long-held strategy of pricing cars at a value.  Two years ago, Toyota started raising prices on an array of models including the redesigned Corolla, launched in early 2008.

When Mr. Toyoda got wind of the slow Corolla sales, he flew to the U.S. to meet with dealers and investigate for himself.

Once again, genchi genbutsu.  It now appears the pricing strategy will go back to one based on value.  Compare that to the pricing strategies of GM, Ford, and Chrysler, where the price is based on a mark-up, then discounted, then discounted further because the vehicles aren't moving fast enough.  What is the true value of that vehicle? 

But the key points are to recognize a problem, visit the source of the problem to see for yourself, and then fix it.  Not ask for a handout or bailout or "investment" by the taxpayer that simply prolongs the problem.  That doesn't create long-term competitive ability.

"We are not gods, we are not infallible," says Shoichiro Toyoda.

Toyota, already a company that can outcompete most others, is recognizing a problem and rapidly changing course to further improve.  Are you? 

Comments

[Bryan]

Returning to the value pricing model will be welcomed by the public. We bought a minivan four years ago and did the ritualistic angst ridden shop around with all makes. Although the Sienna was impressive, it was easy to dismiss as the first choice - it is simply overpriced. We bought a Nissan Quest with more features and better styling for less money. Of course it is simply a matter of opinion, and quality levels aside for a moment - but I couldn't justify spending another $4,000 on a Toyota that appeared to have less value. Plus, pricing models fail to consider downturns in the market which makes the value pricing model the best choice for the long haul. Right now, nobody I know will buy a car that is overpriced. Toyoda is making the right moves. Depending on how they adjust, I may consider a Toyota vehicle in the next year if the pricing is in line with the perceived value.

[Mark Graban]

Just once, could Rick Wagoner or Bob Nardelli say "We are not gods, we are not infallible."????

"We are not gods, but we would be if not for the economic crisis, legacy costs, the unions, our incredibly high number of dealers, the tight underwear I have on, etc. etc. etc."

Nothing but excuses -- the contrast to Toyota and their leadership is striking.

[Brian Buck]

This is a great call to arms for executives that have resisted going to Gemba for years in their organizations. Toyota is going back to it - maybe you should start!

[Karthik Chandramouli]

The article makes it seem like Toyota may become even more conservative and eliminate any vestige of innovation or risk-taking, the opposite of what companies should be doing at a time like this.

"Back to basics" is always in vogue at Toyota, but the more important question is why their vaunted notion of Pull Replenishment allowed so much inventory to pile up in the U.S., long before the financial meltdown began?

Genchi genbutsu is cliche when 120 days of cars are piling up on dealer lots, a la GM, Ford, and Chrysler. That happened much earlier than the credit crisis, and nothing meaningful was done to change.

This is precisely the time for Toyota to radically reinvent its sales and supply chain model, just as the Detroit 3 and other competitors try to break their UAW contract shackles and create a competitive cost structure.

Will they have the courage to do something different and game-changing, or get bogged down in consensus decision making that pays homage to the founding family?

Toyota's proliferation of gizmos has long been an issue in Japan. It's just carrying over to other markets now, a classic case of engineering innovation for its own sake, rather than designing what the customer will pay for.

[Roy B. Vance]

The Big 3 automotive industry (and our government for that matter) should take a real hard / close look at Toyota. Whether we call it Lean or TPS, the bottom line seems to be doing basic, common sense things, to make the product without overfilling the 5 gallon bucket with the 10 gallons of crap no one asked for. The customer (me / you) must be satisfied or the only thing a stymulus is going to do is getting to bankruptcy or failure even faster.

People want a job they can work at and feel like they have contributed to the general good and get paid a fair wage so they can take care of their family. The money hungry Managements / Government need to remember that without the lowly consumer / voter they have no purpose or place in this world.