Driving Today: Toyota Lost Its Way

Toyota Lost Its Way
Driving Today

Toyota is recovering from the scandal of its cars’ unintended acceleration and other recent headline-making problems. But to avoid similar issues in the future, the legendary company must return to the basic principles that made it so successful. That’s the opinion of MIT’s Sloan School of Management Professor Michael Cusumano, who has studied the best practices of Toyota and other leading companies for 30 years.

“Toyota’s strength had always been its attention to detail and quality, but that focus got lost in the last 10 years as the company began to emphasize volume in order to sell more vehicles than General Motors,” said Cusumano, author of Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World. “Toyota violated the basic principle that the pursuit of scale should never drive a company.”

Cusumano appeared in front of a panel of Toyota executives at a recent MIT workshop, created in response to the recent crises the company faced. According to Cusumano -- who has studied firms such as Toyota, Apple, Microsoft, Google and Intel -- global competition, fast-changing technology and other factors pose great challenges to managers. But it is possible to manage around the ups and downs all companies face, he said.

Toyota, which long adhered to the principles outlined in Cusumano’s book, started getting itself into trouble when it began to ignore its core principles. Cusumano became aware of this slippage several years ago, when the company contacted him about possible rust problems in the Toyota Tacoma truck he owned.

“It turned out that corrosion of the Tacoma truck frame in North America was a problem that went back at least a decade and resulted from a lapse in quality with a supplier,” said Cusumano. “Toyota should have issued a formal recall and contacted federal safety officials. Instead, Toyota quietly bought back the trucks from affected owners at 150 percent of their value. To me, that was absolutely a yellow flag, a warning that quality was dropping and that a lot of details were being allowed to slip.”

Still, Cusumano expects Toyota to rebound. In his opinion, most people never really lost faith in the company -- except for that month when it seemed Toyota was releasing a new bit of bad news every day. He noted that sales and profits recovered quite quickly from 2009, which was the first and only year Toyota lost money. The company is now profitable again, and it has gotten back to its quality basics: They are now recalling any vehicle with even hint of a problem, he said.