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Lessons in Corporate Leadership: Learning from the Toyota Debacle

February 17, 2010

Updated May 19, 2011:
On top of the problems Toyota has experienced, the recent earthquake and tsunami that struck the east coast of Japan has added to the company’s dilemma by creating a shortage of automotive parts.

To change and to improve are two different things. (German proverb)

It almost seems impossible that a company like Toyota, which has devoutly followed the path of continuous improvement (known as Kaizen) over the past several decades has fallen into the abyss of worldwide humiliation from the serial recall of many of its models. This is the company that began in 1933 as a division of Toyoda Automatic Loom Works, that later subscribed to the teachings of the late W. Edwards Deming, and that became the benchmark for how leadership should be practiced in an automotive setting. Toyoto also earned widespread respect for its adherence to lean manufacturing, known for getting the waste out of production processes.

What went wrong?

Toyoto, simply put, lost sight of its corporate values and vision of the never-ending pursuit of perfection. Hubris overtook its mission of how it operated and how employees were led in its journey towards its vision.

There are vital lessons for senior corporate leaders to learn from Toyota’s rapid descent. What took this proud Japanese company decades to build took only a few weeks to destroy. It will take years for Toyota to rebuild its brand. I don’t agree with the analysts who predict that this is a mere hiccup for Toyota. Put in the context of the rapid emergence of new competitors, such as South Korea’s Hyundai which has produced motor vehicles for years but which until recently was scorned by consumers, and the landscape has changed. Hyundai not only has become a competing rival to Toyota, but I expect that it will blast past the fallen Japanese titan.

The issue of transparency and business ethics–or the lack thereof–has been further reinforced with the disclosure that two former U.S. government regulators were hired by Toyota to convince the National Highway Traffic Safety Administration to turn a blind eye to the acceleration problems with some of the company’s automobiles. NHTSA employees Christopher Tinto and Christopher Santucci were hired by Toyota in 1994 and 2003, respectively, and used their connections to help end investigations by the U.S. government. According to spokesmen for Honda, GM, Ford and Chrysler, they have never employed former employees of the NHTSA.

When one considers the pinnacle that Toyota had achieved and how it was idolized by consumers, quality gurus and leadership consultants, then these new revelations are staggering in scope. The Toyota brand is not destroyed, but it is also more than just tarnished. The Toyota vision and brand of exceptional quality was apparently hijacked by the overriding desire to become the biggest automotive company in the world. Corporate values also seem to have been thrown out the window.

Volkswagon has stated that it aims to become number one in the world in terms of sales. Well, let’s just hope that the company’s senior leaders learn from the Toyota experience and that we don’t see a repeat performance a decade hence.

Hubris and greed are dangerous ingredients to add to the leadership mix. This will not be the last time where we’ll witness the corporate world making catastrophic strategic errors, only to come clean with the public when they can no longer hide the truth.

Power tends to corrupt; absolute power corrupts absolutely. (Lord Acton)

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6 Comments leave one →
  1. March 3, 2010 11:15 pm

    I guarantee Toyota will be back and kicking atop the leaderboard in North America in less than 2-3 years. In the meanwhile, American automakers should definitely capitalize on this for the short and long term.

    • March 3, 2010 11:19 pm

      My money’s on Hyundai being number 1 in a few years. They’re already re-examining their operations, carefully watching the Toyota fiasco unfold.

  2. February 20, 2010 6:18 am

    Picked up your blog post on Totota. Hope we will be able to share some insights.

    Agree on the importance of the case which we are teaching on our MBS leadership programmes.

    I’ve picked up production rumors that the growth plans over recent years contributed to a drop in standards of the company’s much-admired quality
    controls. Anyone got any firm evidence?

  3. February 18, 2010 12:58 pm

    Thanks for your comment, Walter. It’s fascinating now analysts, commentators, pundits, etc. all have their own view of what this series of events will do to the Toyota brand, ranging from optimistic to very negative. Time will tell, but one thing on which you can be sure, the management literature will explode with new books and journal articles on the Toyota debacle in the coming months.

  4. February 18, 2010 11:42 am

    Never I have thought that Toyota would do such cover ups to hide their mistakes. This is a sad fact considering it’s dominance in the car industry. They have simple forgotten the simple principle of garbage in, garbage out. 🙂

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