ORGANIZATIONAL CULTURE CASE: Developing Chinks in the Vaunted Toyota Way There is the world car industry, and

then there is Toyota. Since 2000 the output of the global industry has risen by about 3m [3 million] vehicles to some 60m [60 million]: of that increase, half came from Toyota alone.1 Toyota has enjoyed a dramatic growth spurt around the globe, and it is on the verge of making more cars abroad than at home.2 As of March 2007, Toyota marketed vehicles in more than 170 countries and employed approximately 299, 400 people worldwide. In addition to its parts manufacturing and vehicle assembly facilities in Japan, Toyota has 52 manufacturing companies in 26 nations and regions.3 Toyotas strong corporate culture is the glue that holds these far-flung operations together and makes them part of a single entity.4 Spend some time with Toyota people and you realize there is something different about them. The rest of the car industry raves about engines, gearboxes, acceleration, fuel economy, handling, ride quality and sexy design. Toyotas people talk about The Toyota Way and about customers.5 Toyotas customer focus is legendary. Jim Press, head of Toyotas North America sales, says, [t]he Toyota culture is inside all of us. Toyota is a customers company. Everything is done to make [the customers] life better.6 Toyotas culture, labeled The Toyota Way, has five distinct components: kaizen, genchi genbutsu, challenge, teamwork, and respect. Kaizen refers to the process of continuous improvement, and it is as much a frame of mind as it is a business process. Genchi genbutsu focuses on going to the source of a problem, finding the facts, and building consensus through arguments that are well supported. Challenge encourages Toyota employees to view problems as a way to help them improve their performance rather than as something undesirable. Teamwork puts Toyotas interests before those of any individual in the company, and promotes sharing knowledge with other employees. Toyotas employees exhibit respect for other people and their skills and special knowledge.7 Toyotas culture has served the company very well for many years. Indeed, competitors marvel at Toyotas culture and its ongoing success. As one General Motors planner observed privately, the only way to stop Toyota would be the business equivalent of germ warfare, finding a poison pill or social virus that could be infiltrated into the company to destroy its culture.8 Over the years, Toyota has adapted well to changes facing the automotive industry by establishing sound processes and procedures. It has made continuous change and improvement the essence of its business philosophy: each year thousands of improvements are suggested by employees and many are implemented. It has built its success with products that are made according to the all-embracing Toyota Way. In fact, so confident is Toyota of its quality and reliability record, that it allows rival companies to visit its factories all over the world.9 Recently, however, some chinks seem to be developing in the armor of Toyotas vaunted culture. An internal Toyota study compared the companys products against its competitors products component by component, car by car and found Toyotas products to be superior in just over half of hundreds of components and vehicle systems. Toyota judged such quality performance to be unacceptably mediocre.10 In reference to the United States market, some business analysts say that Toyotas rapid growth is one cause of the companys growing qualitycontrol problems. For example, in 2005 Toyota recalled 2.38 million vehicles in the U.S., more 1

than the 2.26 million vehicles it sold a sign that indicates Toyota is troubled not only by manufacturing problems but also by design flaws.11 Katsuaki Watanabe, Toyotas CEO, thinks Toyota is losing its competitive edge as it expands around the world. He frets that quality, the foundation of its U.S. success, is slipping. He grouses that Toyotas factories and engineering practices arent efficient enough. Within the company, he has even questioned a core tenet of Toyotas corporate culture kaizen, the relentless focus on incremental improvement.12 Mr. Agata, one of Toyotas manufacturing experts, points out that Toyota needs to depart from its history of steady, incremental improvement and develop radical new ways of manufacturing vehicle components more economically.13 Watanabe also argues that The Toyota Way of the future needs to embrace kakushin revolutionary change in Toyotas design of factories and cars. Watanabe wants Toyota to reduce by half the number of components that it uses in a typical vehicle, and to create new fast and flexible plants for assembling these simplified cars.14 How will Toyotas global organizational culture change as the company embraces kakushin? Discussion Questions 1. Describe Toyotas culture from the perspective of espoused values and enacted values. 2. Using the perspective of the functions of organizational culture, explain the impact of The Toyota Way. 3. Using the perspective of the effects of organizational culture, explain the impact of The Toyota Way. 4. What challenges does Toyota face as it embarks on transforming its global organizational culture from kaizen to kakushin? SOURCE: This case was written by Michael K. McCuddy, The Louis S. and Mary L. Morgal Chair of Christian Business Ethics and Professor of Management, College of Business Administration, Valparaiso University.

Anonymous. (2005) Special Report: The Car Company in Front Toyota. The Economist (January 29), Vol. 374, No. 8411, p. 73, from ABI/INFORM Research database (accessed October 22 2007). Anonymous. (2005) Special Report: The Car Company in Front Toyota. The Economist (January 29), Vol. 374, No. 8411, p. 73, from ABI/INFORM Research database (accessed October 22 2007). Toyota Up Close. http://www.toyota.co.jp/en/about_toyota/outline/index.html (accessed October 26 2007). Anonymous. (2006) Survey: Inculcating Culture. The Economist (January 21), Vol. 378, No. 8461, p. 13, from ABI/INFORM Research database (accessed October 22 2007). Anonymous. (2005) Special Report: The Car Company in Front Toyota. The Economist (January 29), Vol. 374, No. 8411, p. 73, from ABI/INFORM Research database (accessed October 22 2007). Anonymous. (2005) Special Report: The Car Company in Front Toyota. The Economist (January 29), Vol. 374, No. 8411, p. 73, from ABI/INFORM Research database (accessed October 22 2007). Anonymous. (2006) Survey: Inculcating Culture. The Economist (January 21), Vol. 378, No. 8461, p. 13, from ABI/INFORM Research database (accessed October 22 2007). Anonymous. (2005) Special Report: The Car Company in Front Toyota. The Economist (January 29), Vol. 374, No. 8411, p. 73, from ABI/INFORM Research database (accessed October 22 2007). Cook, S., Macaulay, S., and Coldicott, H. (2005) Facing the Devil in the Detail. Training Journal (October), p. 32 (5 pages), from ABI/INFORM Research database (accessed October 11, 2007). Shirouzu, N. (2006) Paranoid Tendency: As Rivals Catch Up, Toyota CEO Spurs Big Efficiency Drive; Culture of Institutional Worry Drives Mr. Watanabe; How Paint Is Like Fondue; Finding Limits to Improvement. The Wall Street Journal, eastern edition (December 9), p. A1+, from ABI/INFORM Research database (accessed October 22 2007). Shirouzu, N. (2006) Paranoid Tendency: As Rivals Catch Up, Toyota CEO Spurs Big Efficiency Drive; Culture of Institutional Worry Drives Mr. Watanabe; How Paint Is Like Fondue; Finding Limits to Improvement. The Wall Street Journal, eastern edition (December 9), p. A1+, from ABI/INFORM Research database (accessed October 22 2007). Shirouzu, N. (2006) Paranoid Tendency: As Rivals Catch Up, Toyota CEO Spurs Big Efficiency Drive; Culture of Institutional Worry Drives Mr. Watanabe; How Paint Is Like Fondue; Finding Limits to Improvement. The Wall Street Journal, eastern edition (December 9), p. A1+, from ABI/INFORM Research database (accessed October 22 2007). Anonymous. (2005) Special Report: The Car Company in Front Toyota. The Economist (January 29), Vol. 374, No. 8411, p. 73, from ABI/INFORM Research database (accessed October 22 2007). Shirouzu, N. (2006) Paranoid Tendency: As Rivals Catch Up, Toyota CEO Spurs Big Efficiency Drive; Culture of Institutional Worry Drives Mr. Watanabe; How Paint Is Like Fondue; Finding Limits to Improvement. The Wall Street Journal, eastern edition (December 9), p. A1+, from ABI/INFORM Research database (accessed October 22 2007).

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