Lesson for Toyota from the Classics: the Cost of Victory

It’s a shame that future leaders of major corporations such as Toyota and GM no longer receive education in the Classics. If they had, maybe the senior executives at Toyota would have remembered the story of King Pyrrhus of Epirus and his victory over the Romans at the battles of Heraclea and Asculum nearly 2,300 years ago. You would think that when historians name an entire category of victories after a military leader, that’s a good thing. But the Pyrrhic victory is one that comes at devastating cost to the victor. Pyrrhic victories are those that make you say “if we win a couple more of these, we’ll be finished”.
Toyota officially became the world’s number one automobile manufacturer by volume, as GM inevitably could not continue making cars they could not sell only in the name of being number one. Today’s Washington Post reports that Toyota Passes General Motors As World’s Largest Carmaker:

Toyota outpaced its rival to sell 8.972 million cars and trucks around the world in 2008, about 616,000 vehicles more than GM’s final tally of 8.356 million.

How great was the cost of victory for Toyota in the battle to expand worldwide market share? In typical fashion Toyota threw themselves at the goal of capturing 15% of global market share by 2010 with great focus and execution. Becoming number one was not the stated goal, but expanding market share in GM’s key markets certainly was a means to their goal. As with all things there is a cost, and this expansion has weakened Toyota to an uncertain degree. I believe there are three ways we can see this.
First, there is the well documented drop in quality due to the diluting of product design process know-how in the engineering ranks with the pressure to develop vehicles more quickly and at a lower cost to capture market share. While Toyota has been making corrections in this area, it caused Honorary Chairman Shoichiro Toyoda to ask at a 2006 executive management planning meeting “when did Toyota become a company like this?”. Perhaps the return of a Toyoda family member to the helm will help bring back the founder’s values that may have been lost through rapid expansion.
Second, their victories have accelerated the talent drain. As Toyota expanded their operations internationally the Japanese corporate culture of lifetime employment and two-way commit to develop and be developed encountered the realities of fluid labor markets outside of Japan. No doubt a certain loss of management talent was expected. However 10 and 20 years on, well-trained Toyota engineers and managers are in high demand, no small part in thanks to the fact that the success of Toyota has been highly visible as they build factories and take away market share from competitor. Compared to the starting days at NUMMI or TMMK, there has naturally been less on-site support from the mother factory coordinators, and execution of the management system and philosophy has weakened, based on my discussions with Toyota managers. Toyota is working to correct through both intensified training and methods to accelerate the training. In hindsight, could a lower profile, less willingness to share the magic of the Toyota Production System and a more guarded approach to expansion have left them in better shape in talent management terms?
Third, at this time of reduced volume Toyota has a base of suppliers that are lean and fit but in many cases living on slim margins dependent on certain production volumes to cover the investment cost of equipment and hit target costs.To those suppliers with pockets not as deep at Toyota who expanded overseas along with Toyota, the pain from the above two points is even more acute. Toyota is extending support to suppliers in Japan, allowing them to build up inventory in some cases just to keep operating, according to local newspapers.
History may look upon the expansion to the three most recent projects in North America and conclude that they were very un-Toyota-like missteps guided by the illusion of ever-growing demand, unless such a demand quickly returns. Toyota is number one, but we do not hear even subdued cheering from the Korean barbecue bars of Nagoya at Toyota’s victory in the volume battle. No, there is no joy in Mikawa-ville, these days. The Toyota spokeswoman Zoe Zeigler, back on message, lesson apparently learned:

“We’re not focused on ranking, but customer needs,” she said. “We want to be No. 1 in quality, not quantity sales.”

GM spokesman and executive director of global market and industry analysis Michael DiGiovanni was quoted spinning a different message from Rick Wagoner’s “we will not cede number one” position from not so long ago:

“I don’t think being number one in vehicle sales means much at all to the average consumer,” he said. “It’s an internal benchmark of our industry, but it really doesn’t mean anything to the consumer. I think what matters most to the consumer is strong brands and strong products. And the key thing right now, with what the industry is going through, is that everybody needs to be focused on viability and profitability.”

Now that GM is no longer number one, size doesn’t matter: it’s all about the customer. They are finally putting the horse where it belongs, nearly a century after the buggy whip went out of style.
Hopefully this won’t have been a Pyrrhic victory for Toyota. Luckily they have pockets deep enough to keep their troops fed through the battle against low demand, they are not lacking in desirable products and technologies for returning customers, and they are not facing a city pouring avenging Romans back out onto your newly victorious battlefield.

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