What Entrepreneurs Can Learn from Toyota and its Crises

By Jeffrey K. Liker and Timothy N. Ogden, authors of Toyota Under Fire: Lessons for Turning Crisis into Opportunity

Can entrepreneurs today learn anything from a giant global manufacturing company? Particularly one that has faced withering criticism for losing its way and endangering customers, lost US$4 billion in a single year recently and slipped from its perch at the top US auto industry? After years of studying Toyota, and especially after conducting in-depth research on Toyota’s response to the global recession and recall crisis, we think there are very valuable lessons to be learned by studying Toyota.

Most of those lessons aren’t negative ones. In fact, you’re probably learning from Toyota already—the current trend in “lean start-ups” can be directly traced to Toyota’s entrepreneurial origins. A major factor in the development of the Toyota Production System, which inspired the global lean movement, was a shortage of working capital when Toyota was young. That’s certainly something that most entrepreneurs can relate to. The story is that Toyota couldn’t afford inventory or waste. So it had to innovate a just-in-time and total quality approach to maximize capital efficiency.

Perhaps the most important insight from those early days at Toyota was that making lean work was entirely dependent on people: people who could solve problems and maintain the right focus. That insight goes all the back to the founder of Toyota (when it made automatic looms), Sakichi Toyoda, and his son, Kiichiro (who started manufacturing automobiles). The founders laid the foundation for a culture that continues to guide the company to this day.

The story of Toyota’s rise on the global stage is really the story of a deep investment in people, an investment in developing a culture of responsibility, respect for people, problem-solving and putting customers’ first. Toyota views its people not as the biggest bucket of variable costs, but the biggest bucket of appreciating assets.

During the Fall of 2009 and Spring of 2010, you could be forgiven for believing that Toyota had finally lost this focus; that its people, culture and processes had broken down. That was certainly the dominant story in the media. But it’s almost completely wrong. There were problems at Toyota but they weren’t the ones posited in the media—and it was the people and culture that allowed Toyota to respond to the crisis in ways that will allow the company to continue to thrive for the long term.

The recall crisis was potentially devastating because it called into question the very core of Toyota’s reputation—its quality, safety, and integrity. When over a year after the crisis first exploded the U.S. government issued its report, it largely absolved Toyota of any serious problems leading to runaway cars. The culprits in the many accidents sensationalized were “pedal misapplication” (pushing the gas instead of the brake pedal) and pedal entrapment (due to use of inappropriately sized, installed or stacked floor mats).

Yet, despite the deeply inaccurate media portrayal of both the company, the accidents and the evidence for defects, Toyota continually apologized publicly and vowed to improve quality, safety, and customer responsiveness. Why didn’t the company go on the counterattack and defend their honor?

Quite simply, doing so would have been a betrayal of the culture planted so strongly during the firms entrepreneurial days. Blaming others would have turned attention externally when, regardless of external perceptions, the true priority always has to be the search for opportunities to improve. Generating passion for continuous improvement requires not hiding problems or blaming others but people throughout the company taking personal responsibility to solve problems regardless of their source.

That passion kicked off intense activity at the company to go back to the basics, re-examine everything and find ways to improve. That’s what made Toyota into a world-beater—a culture that constantly reassesses every process to find ways to improve. One important, and little reported aspect of that effort is that even while losing $4 billion, Toyota didn’t engage in any involuntary layoffs. That meant it had the people—the appreciating assets—to truly engage in continuous improvement.

All our research on Toyota’s reaction to the crisis and its efforts at continuous improvement led back to the same conclusion: culture matters more than anything else. That’s especially true in a crisis. Turning crisis into opportunity is all about culture. It’s not about PR strategies, or charismatic leadership, or vision, or any specific action by any individual. It’s not about policies or procedures or risk mitigation processes. It’s about the actions that have been programmed into the individuals and teams that make up a company before the crisis starts. The decisions that made the most difference during the crises at Toyota were made well before the crises took place. These decisions weren’t happenstance, luck, or the insight of a particularly wise individual. They were reflections of the Toyota Way culture.

That, we think, is the most important lesson for entrepreneurs. An entrepreneur always has a 1000 things to focus on. But none of them are more important than building a culture and investing in people who can live that culture. Your innovations, technical skills, pricing and distribution strategies, customer lists or marketing savvy won’t matter nearly as much over the long term as the people you’ve developed and the culture you’ve instilled.

What kind of culture are you creating in your start-up and how much are you investing in it?

This post is an excerpt from Toyota Under Fire: Lessons for Turning Crisis into Opportunity.

Categories: general


Leave a Comment

  • (will not be published)