The first statement in yesterday's Wall Street Journal article summarized it well:
Toyota Motor Corp.'s incoming president, Akio Toyoda, has a sobering message for the giant company founded by his grandfather: It has gotten too fancy for its own good.
That's often a death nell for most companies. Bloated bureaucracies, inefficient execution, convoluted decision-making, wasteful resource transfer… wait… that's starting to sound like the government. The difference with Toyota is they are recognizing they have a problem, and they're taking action. Action that doesn't require additional spending, raising taxes… or raising prices in their case.
Akio Toyoda is going back to the basics, and he started by going back to a basic concept that should be practiced on an ongoing basis in any organization: going to the gemba.
Akio Toyoda has long preached a traditional Toyota practice called genchi genbutsu, a leadership maxim that boils down to get out of your office and visit the source of the problem. For the past year Mr. Toyoda has been practicing genchi genbutsu to quietly collect evidence that the company had strayed, according to people familiar with the situation.
So what did he find? Features that have questionable fundamental value for the customer for one.
For example, the new Prius, launching this year, has an option for a solar-powered ventilation systm designed to keep the interior cool when parked. Gizmos like these helped lift the car's retail price to an estimated $28,000.
And even the vaunted manufacturing operations had projects of debatable value.
Then there's the shabu shabu paint system. To replace the traditional system of slowly dragging a car through a 115-foot-long bath of anticorrosion undercoating, Toyota engineers came up with a new process in which a part gets picked up by a robot arm, then swished around in a pool of paint, cutting the length of the line.
However, the new system costs roughly four times as much to set up as the traditional process, while producing what Mr. Toyota felt were minimal improvements in the quality of the paint job and its efficiency.
Perhaps most importantly is the pricing model, where Toyota taught us to price based on value, which is set by the customer and market and not the manufacturer.
Toyota executives reasoned American consumers would be willing to pay a premium for a Toyota – a change from a long-held strategy of pricing cars at a value. Two years ago, Toyota started raising prices on an array of models including the redesigned Corolla, launched in early 2008.
When Mr. Toyoda got wind of the slow Corolla sales, he flew to the U.S. to meet with dealers and investigate for himself.
Once again, genchi genbutsu. It now appears the pricing strategy will go back to one based on value. Compare that to the pricing strategies of GM, Ford, and Chrysler, where the price is based on a mark-up, then discounted, then discounted further because the vehicles aren't moving fast enough. What is the true value of that vehicle?
But the key points are to recognize a problem, visit the source of the problem to see for yourself, and then fix it. Not ask for a handout or bailout or "investment" by the taxpayer that simply prolongs the problem. That doesn't create long-term competitive ability.
"We are not gods, we are not infallible," says Shoichiro Toyoda.
Toyota, already a company that can outcompete most others, is recognizing a problem and rapidly changing course to further improve. Are you?