Balancing Market Leadership and Social Responsibility at Toyota

It has been an interesting week for Toyota watchers.
In response to Chairman Okuda’s call to Japanese automobile makers last week to raise prices to give GM some “breathing room”, Toyota’s operational executives quickly announced that there were no plans to do this. Yet the helping hand from Toyota to GM remains extended.
There were several articles this week reporting that Toyota and GM are in talks to share Toyota’s hybrid technology. This would allow GM to build hybrids to compete with Toyota’s line up including Prius and the Lexus RX 330 hybrid. Together, the two giant firms could offer a much wider range of hybrids.
Although the No. 1 (GM) and No. 2 (Toyota) global automobile manufacturers are rivals, this technology partnership makes sense for both. GM’s performance is hurting partially because it heavily depends on gas guzzling SUVs for earnings. According to an unpublished study from the University of Michigan Transportation Research Institute, the estimated drop in profits attributable to reduced sales of large and midsize SUVs for GM, Ford and Chrysler is 40%, or nearly $7 billion between 2001 and the end of 2004.
Toyota’s long-term vision and strategy call for the hybrid becoming the de facto standard as the next generation of vehicles (instead of hydrogen fuel cell vehicles or gasoline vehicles, for instance). As GM and Toyota have already had a successful joint venture at the NUMMI manufacturing facility in California this new partnership has a high chance of success.
Giving GM breathing room is one thing; allowing GM to remain No. 1 is quite another matter. Toyota made news this week several about plans to expand production capacity as well as local production of key products this week. Toyota announced plans for their 7th automobile factory in North America to be located in Ontario, Canada. Also, Toyota is firming up plans to make a hybrid Camry at the Georgetown, KY factory. If the popularity of the Camry and of the hybrid Prius is any indication, this would be a blockbuster product. Toyota is also mulling production of the Prius and a hybrid Corolla in North America.
In a May 12, 2005 article titled “Heavy Load: For Toyota, a New Small Truck Carries Hopes for Topping GM”, the Wall Street Journal reported on Toyota’s plans to expand production of its Hilux truck through increased production of components within free-trade zones in lower labor cost countries, closer to the markets for the Hilux. These additional 500,000 Hilux vehicle sales in emerging markets represents one third of the 1.6 million vehicles Toyota needs to sell to overtake GM in their No. 1 position. There are quality challenges to increasing production of components outside of Japan and certainly strengthening the awareness of kaizen among these factories is a key.
In financial news, Toyota reported record-high earnings, up 0.8% for the last fiscal year which ended in March. Yet is profits were down by 17% for the final quarter. “Toyota’s Push for Market Share Cut Into Its Fourth-Quarter Net” called out the Wall Street Journal headline on May 11, 2005. Demonstrating the American talent for short-term thinking, Goldman Sachs cut its rating on Toyota stock from “outperform” to “inline”. Essentially, they told the investment community that Toyota’s investment in growth made the stock less attractive for the next 90 days.
Toyota is investing rapidly in growth. Why not slow down and maximize shareholder return in the short term? Toyota has grown from selling 6.7 million vehicles in 2003 to 7.4 million vehicles in 2004, growing in all of its key markets. Toyota has doubled the number of their production facilities outside of Japan to 51 over the last 10 years. They have done this profitably. It is worth keeping in mind that Toyota has a habit of announcing growth targets and hitting them, consistently.
Unlike some executives in U.S. firms who announce growth plans or financial targets and manipulate numbers for short term stock performance, Toyota uses a process called Hoshin Kanri to ensure their breakthrough plans are well thought out, properly resourced, monitored, and corrective actions are taken to stay on course.
I have never heard an executive of a Japanese manufacturing company speak the words “maximize shareholder value”. This phrase and this thinking simply do not seem to be first on the list. When stock price or shareholder value is on the top 3 list, it is well-balanced by dedication to community, environment, and corporate social responsibility. The top objectives of the best performing and most successful Japanese firms are based on a business philosophy of long-term sustainability. This week痴 news of Toyota痴 plans to expand the availability of hybrids (environmental & social responsibility) and expansion of production at or near local markets demonstrates Toyota痴 philosophy is a balance of profit and caring for people.
As teachers and students of Lean manufacturing who look up to Toyota, are what can we practically learn from Toyota’s vision and how they take action to support it? Certainly if a company is not making money, it may not be able to afford thinking globally and act with social responsibility first in mind. It is necessary to first become Lean, in some cases making painful cuts or restructuring in order to survive. Once a company has stability (a viable and sustainable business plan), it makes sense to shift attention to long-term environmental and social commitments.
Toyota is the world standard as a Lean manufacturing company and has the growth, the profitability and the cash to take the 100 year view and act on it this quarter. Toyota’s philosophy of kaizen encompasses not only production processes but seemingly all aspects of their business planning.