Toyota Conundrum

This is one of the most intriguing stories of the modern industrial era. It is so not just because it involves one of the manufacturing icons of our times, but because its larger than life story of success and exemplary execution has become the closest representation to an ideal business model.

Nothing used to be more convincing about building a supply chain, running efficient operations, employee involvement, customer loyalty and product reliability, than the example of Toyota’s Production System. An entire vocabulary of Japanese terms has been embraced and popularized by a consulting industry fascinated with the attributes of the TPS. Many companies around the world have tried to emulate their style of operation. Everything seemed to evolve in their favor until their own success started to haunt them. Last year Toyota surpassed all the other car manufacturers in global sales. There is little surprise that simultaneously it became the target of public scrutiny and political interest.

Marketing specialists have advised for years that product identity is key in establishing consumer preference. For Toyota that ID tag was reliability. But the differentiation attribute could be also the Achilles heel. When that unique quality starts to fade, the entire foundation of trust is shaken. The recent incidents related to sudden acceleration - reported by drivers of some models - is exactly the type of problem that could ruin Toyota’s untainted reputation.

What caused the unexpected turn of events? At what point did they deviate from the strategy that ensured them success? Where did their new tactics open areas of vulnerability? All of these are questions that, in the last few months, preoccupy the minds of industry experts, political commentators, media and financial analysts as well as the public at large.

One of the memorable aspects of Toyota’s traditional image is the superiority of their technical characteristics and the processes that ensured almost perfect quality and reliability. We might have become accustomed to that image via marketing campaigns or advertizing, but the credibility of its claim was based on technical merits. The people who made that image recognizable were more the likes of engineers and technicians who created designs, processes and systems that resulted into meritorious products, and less the kind of individuals who spread the word through shows, billboards and TV advertizing.

It is relevant to remember that when Toyota developed the strategy of penetrating the North American market, it sent an army of engineers to study the lifestyle of the target audience, and to translate the discoveries into product attributes that are suitable and attractive to the intended users. They returned with intelligent findings, objective observations and the knowledge rooted in the reality of the market they were committed to serve. What resulted was a series of high performance, attractive and reliable models that gradually earned the respect of the North American public and the appreciation of a loyal clientele. Engineers and technicians used to be the heart and soul of the Toyota organization.

More recently, due to competitive pressures, they switched the focus to marketing and sales, and placed their technical foundation on the back burner. There is usually a lag between the change in strategy and the impact in the field. However, when consequences start to surface they have a long-term effect. There is also a fine balance between the amount of funding, energy and effort required in different functional departments of a corporation. It doesn’t take much, though, to push an institution off balance.

It is clear now that Toyota – while claiming more boldly their first place in the minds of the customers through expensive and aggressive marketing campaigns – have taken their eyes off the ball, and subordinated the usual rigorous development, testing and control systems to the temptations of rushing production, and the pressure of being first on the market.

There is a lesson to be learned from each failure. I am sure that the Japanese technicians will eventually restore their good name by resorting to what brought them the initial reputation: solid engineering and decent positioning.