Some day someone will write a book about the thirty year battle between GM and Toyota to be the biggest that, like Otus and Ephialtes of Greek mythology, ended with the two giants killing each other, while the wilier good guys got away. The Congressional hearings yesterday in which Akio Toyoda was raked over the coals by a gaggle of grandstanding lawyer-politicians – mostly from districts that include competing car company operations, with a heavy bias toward Democrats from Michigan – is little more than theater of the absurd with little bearing on Toyota's problems or its needed corrections. There is some irony, I suppose, in watching the same jackals who picked apart the carcass of GM circling a wounded Toyota looking for opportunity. In the long run, however, the government has little to do with the woes of either company.
It is also interesting, but more a distraction than anything worth engaging in, to observe the folks who made a big emotional investment in one of the two companies or the other struggle to continue the fight and assert claims to moral victory. In Japan a vast conspiracy theory has grown legs, with many believing that Toyota did nothing wrong and that this whole fiasco is a plot between GM and its government owners to destroy Toyota; while the 'I told you so' cries of jubilation pouring out of Michigan are deafening, but pathetic.
The big lesson to be learned is the folly that comes from pursuing the wrong objectives. Toyota self-destructed as a result of changing their goal from being the best to being the biggest. GM hung onto brands and acquisitions – refusing to acknowledge failures – for far too long. Had they scaled back on their own ten or fifteen years ago with a paring knife they most likely would not have had to be scaled back with a government wielded meat cleaver last year.
Tom Johnson from Portland State University, who has always been able to see further down the road than the rest of us, warned years ago of the destruction that inevitably comes from pursuing growth for its own sake. He pointed out that companies are systems, much like a human being or any other animal. An ant should not aspire to be the size of an elephant, and people should not set their goal on being as big as they possibly can. Systems thrive when they are the right size for their environment. The folks running Toyota should know that the life span of a Sumo wrestler is considerably shorter than that of a healthy person.
Most companies don't understand this, however. It is only because they are not particularly good at what they do that keeps them from racing down the same path as GM and Toyota. The fact that they have not died from extreme obesity is not for lack of trying. The sales and marketing effort is usually aimed first and foremost at selling more – who they sell to or what they sell is not important. The goal is to 'grow the top line', and it is operations's problem to deal with the peaks and valleys of volume and the ensuing capacity over and under utilization that results. They do not operate as an integrated business – working together to continually find the right level of volume to enable them to best utilize their physical and human resources.
I recently worked with a company that could teach the folks running both Toyota and GM a thing or two on the subject. This contract manufacturer subjects potential new customers to a ten point assessment prior to quoting on new business with them – and more than half of the potential customers their sales function brings to them fail the test, and these folks refuse to quote their business. They are selective about who they sell to and are constantly looking for the right volumes and the right fit. Needless to say, these people are profitable, and growing, but at a slow and steady rate that keeps them strong and healthy.
More and more manufacturers are figuring out that, beyond lean factory techniques lies lean accounting; and they start to use 'Real Numbers' to borrow Jean Cunningham's phrase. The real numbers make clear the need bringing sales and marketing into the lean scheme, using pricing strategically – based on total spending rather than unit standard costs - as the device to continually dial volumes into the right capacity utilization levels, and as the device to make stable employment a weapon rather than a burden.
The moral of the GM versus Toyota story is that running the business by cutting the sales folks loose to grow by any means – the faster the better – then tasking the rest of the business with following them up the peaks and down into the valleys – is folly. The objective is to seek the right size for the business you are in, and grow as you can and should, but to do so by adding muscle, not fat.
When I first heard that congress was investigating Toyota my first thought was conflict of interest. I don’t think congress has any role in this. Leave the NHTSA and whatever other agencies regulate passenger vehicles to do their jobs without meddling from the same government that owns a major competitor.
As for growth: we all hear the mantra “grow or die” enough that we start to believe it. Combine that with Wall Street-driven focus on quarterly performance and you get the growth for growth’s sake mindset.
Bill Waddell says
Amen, Dean. Couldn’t agree with you more.
Someone in Obama’s government needs to ensure the GM bailout doesn’t fail. GM beleives (and has beleived for many ages) that their problem is not internal, but rather Toyota is the problem. And when asked the simple question to GM “what do you need from the gov’t to ensure the bailout doesn’t fail?”, what would you think their answer is?
I think the NHTSA has quite a bit of leeway in making the call if a defect is just an anomoly or rather something recallable. How many years did Ford put Wilderness A/T tires on Ford Explorers before having to do a recall? It took them 10 years to complete the recall of some 14 million cars due to faulty cruise control switches!
Or maybe I’m just a conspiracy theorist. But you’re certainly make a good point when you see Toyoda getting grilled by Michigan democrats…
There is a big diference between the two. Toyota hit the (very expensive) ‘red’ emergency stop botton at every plant to ensure no more bad product shipped. They recognized their error and they will adjust. Toyota will come out a better car company because of this.
david foster says
This is closely related to dividend policy. If shareholder returns in the form of dividends are taxed more highly than capital gains (as they previously were) or even if they’re just looked down on relative to stock price appreciation, then the only way to get “meaningful” returns is through growth. If, on the other hand, dividends are generally considered an important component of return, then absolute profitability and cash generation becomes more important relative to growth.
Paul Todd says
Comment to George on the “stop button” at Toyota: Let’s be clear on the facts – Toyota stopped sales only after the NHTSA ordered them to, and from there it’s a simple decision to suspend production of cars you can’t offer for sale. I agree that Toyota will emerge stronger, but facing the cold truth is step one.