Toyota: now leading from the front

It finally happened this week: Toyota overtook General Motors as the world's biggest-selling car manufacturer.

by Nick Loney, World Business web exclusive
Last Updated: 23 Jul 2013

The long-awaited succession ushers in a new era in the automobile industry, as a non-US firm reaches top position for the first time. Although it has surpassed GM in global worldwide sales for one quarter only, Toyota seems likely to remain ahead for some time. None of its rivals have been able to match the Japanese giant's relentless growth in recent years, and none look likely to do so in the near future.

Toyota's success has been built on its unique management style, called Toyota Production System (TPS).In a radical break from traditional ‘command and control' approaches to management, Toyota gives each employee the skills and tools to solve problems as they arise, allowing the company to innovate from the bottom-up. It calls this process kaizen (continuous improvement).

Rather than asking each employee to come up with ideas to improve the company, Toyota is structured in a way that requires workers to think for themselves. Innovation and adaptation occur naturally during the production process, and the company says it receives more than a million ideas a year from its employees as a result.

The company also invented the now-famous just-in-time system of production, which allows customers to ‘pull' the product they want from the company, rather than having the company ‘push' its products on to the market. So instead of having a large amount of inventory, a just-in-time plant produces only the amount that is needed and requires each employee to be an active participant in the production process.

Toyota's astonishing rate of growth has been largely due to TPS. Between 2000 and 2005, the annual output of the global car industry rose by 3 million vehicles to 60 million a year; Toyota accounted for half of that increase. But despite Toyota's success, other companies have been slow to catch on. According to John Seddon, author of Freedom from Command and Control (2005), this is because most companies still view TPS, erroneously, as a ‘set of tools'. In fact, says Seddon, "it's a way of thinking. Toyota is an exemplar, an economic legend in its own lifetime and a fundamental challenge to accepted beliefs. It doesn't separate management from work, as most companies do. The problem other firms have is that they are unable to see Toyota's approach as a whole philosophy, not a set of tools to be applied."

But as Toyota's executives look down from their lofty new position, feelings of triumph are likely to be mixed with apprehension. Many in the company believe that the company's best position is to be just behind the leader. As any long-distance runner or Formula One driver will attest, the psychology of pursuit is fundamentally different to that of maintaining a lead, and for Toyota, the switch from the former to the latter will present leadership and management challenges the company has not faced before.

Moreover, the battle for dominance in the world automobile market will in future shift away from the US, where Toyota has benefited from the mistakes of its American competitors, to the emerging markets of India and China, where GM is more competitive and local manufacturers are modelling Toyota's approach in their quest for a share of the market.

Other concerns include rising manufacturing costs in the US, and the relative inflexibility of Toyota's assembly plants in North America, which can only produce one model at a time, compared to the half-dozen models simultaneously produced by Japanese plants.

However, despite these concerns, most analysts expect Toyota to maintain its position ahead of GM when this year's annual figures are announced. The question will then be whether it can lead its workforce as effectively when in front as it did when behind.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today