The Toyota Way, 2nd Ed 2020 - excerpt
by Jeffrey Liker | Liker Advisors
P
rinciple 14: Learn your
Way to the Future through
Bold Strategy, Some Large Leaps and Many Small Steps
“
You’ve got
to think about big
things while you are
doing small things, so
that all the small
things go in the right
direction. — Alvin Toffler,
author, Future Shock
Success of any organization
is far more than continuously
improving processes.
What
customers want is a product or
service that connects with them —
solves their problems, excites
them, makes sense to them, and
does something important for
them that competitive products or
services do not. Customers will
pay extra, and even be inconvenienced, for a next-generation product or service that satisfies their
needs at a higher level. Witness
the first iPhone. Breakthroughs
can be disruptive to an industry.
A strategy is a plan, a vision,
ideas about the product or service, the target market, the means
of delivery, the service levels, and
it then needs to be put into action.
For simplicity, let’s distinguish between strategy, the plan, and execution, which is how we actually
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do things.
Execution can be excellent,
okay, or poor. If the product is
uniquely useful, or in short supply,
then execution does not have to
be as great. Consider how people
put up with the buggy, featureless
first iPhone and waited in line to
get it. Or, more recently, how people would do anything to get sanitized wipes during the Covid crisis. On the other hand, some
companies make a living delivering commodities, but executing at
a superior level of quality, lead
time, and/or cost—what we usually think of as lean. That has become an important part of Amazon’s model.
One of the worst situations
can be when a company’s’ strategic plan includes being great at
execution, but the reality is much
worse. Pfeffer and Sutton talk
about the “knowing-doing gap”
and give many examples of organizations that think they know
how to be excellent, but fail in daily practice.
As an example of a company
with a unique product offering,
Tesla is shaking up the auto industry by dominating the allelectric market. It has one and
only one strategic direction:
CASE, which is Connectivity, Autonomous, Sharing/Subscription,
and Electrification—based on battery-powered vehicles. Unencumbered by old-line vehicles and
business models, it is off and running toward CASE with a level of
innovation not seen in automotive
since early breakthroughs in gas-
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The Toyota Way, 2nd Ed 2020 - excerpt by Jeffrey Liker | Liker Advisors
powered vehicles. Before Tesla,
entering and surviving this capitalintensive industry with a history of
Corporate strategy guru, Michael Porter, warned in a classic
1996 Harvard Business Review
article that “operational effectiveness is not strategy.” He also
warned in that article that Japanese companies had turned cars
into a commodity and were competing on cost and quality, cannibalizing each other’s margins:
“
The dangers of
Japanese-style competition
are now becoming easier to
recognize. In the 1980s,
with rivals operating far
from the productivity frontier, it seemed possible to
win on both cost and quality
indefinitely…. But as the
gap in operational effectiveness narrows, Japanese
companies are increasingly
caught in a trap of their
own making. If they are to
escape the mutually destructive battles now ravaging their performance, Japanese companies will have
to learn strategy.
low margins
seemed difficult, if not
nearly impossible.
Many auto companies throughout the world have struggled, hovering near or going bankrupt.
Toyota has not been one of them,
charging premium prices and
earning robust profits year after
year, and with plenty of cash
available. The Toyota Way is as
much about studying the environment and developing long-term
strategy based on facts as it is
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about taking cost out of manufacturing processes. At the same
time, Toyota is showing no signs
of sticking its head in the sand
and pretending all this new technology shall pass. As President
Akio Toyoda made clear in a
speech, on “Becoming a Mobility
Company,” December, 2019:
“
Toyota's growth
to date is within the established business model of the
automotive industry. In light
of technological innovations
in "CASE," the very concept
of the automobile is on the
verge of major change. Given this situation, we must
transform our business
model into one that is in
line with the CASE era.
Therefore, rather than focus
solely on passenger cars
and individual customers,
we can spread these technologies via commercial vehicles and vehicles for government offices and fleet
customers. Rather than conduct development on our
own―without friends and
partners―we can partner
and collaborate with others
who share our aspirations.
Rather than sell only cars,
we can provide various services in which vehicles are
incorporated into a system.
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The Toyota Way, 2nd Ed 2020 - excerpt by Jeffrey Liker | Liker Advisors
Contrary to popular belief, continuous improvement means more
than small, incremental changes
in processes. It simply means
improving continuously, sometimes with breakthroughs driven
by hoshin and other times more
gradually through daily management. For Toyota, a well-thought
out strategy and excellent execution are not alternatives, but are a
necessary combination.
The
foundation of the Toyota Way
2001 starts with breakthrough
challenges, not small incremental
improvements. Toyota evolved
out of innovation, originally in developing power looms and then in
automobile design, and ever since
its executives have preached
about the next existential crisis
around the corner while the company repeatedly breaks new performance
records.
Toyota
disrupted
the industry in the
1970s with
the Corolla; it hit the
sweet spot
of fuel efficiency,
size, and
power and
became
the bestselling vehicle in the
world.
Toyota did
it
again
with
the
Lexus
when nobody
thought of luxury and Japanese
cars in the same sentence. The
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Prius was another example, taking a bold step into the 21st century before any other automaker.
And when we look back, we may
view Toyota as the disruptor that
created the hydrogen fuel-cell
market.
At this point, I think the key for
Toyota is building competencies
in the technologies for the future,
and as usual Toyota is happy to
stay under the radar. It likes to let
their “products speak for themselves.” It is definitely methodical,
but moves at a crisp pace and
arguably works on more fronts
than any other automaker.
Having built a strong brand
known for reliability, generated
strong sales and profitability, and
amassed boatloads of cash Toyota has the luxury to think longterm
and
execute
based on a
strategy
and a bold
vision that
looks out to
2050 and
encompasses significant environmental
challenges.
When
asked what
he
has
learned
from
the
many crises
he
has
faced,
including the
transformation
of
the industry
and Covid-19, his message was
to keep calm and manage stably:
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“
The number one
thing I have learned and
that I am prioritizing from
my learning is that I am not
panicking. I am managing
the company very efficiently
and stably. In managing the
company during these past
10 years, no years were
peaceful. Every year, year
on year, we have witnessed
and experienced a large,
drastic change on the scale
of a one-in-a-100-year
event. So, I think that the
calmer I am, the calmer
things are within the company
We can debate who are the
greatest sports figures of all time
in tennis, soccer, basketball, golf
or whatever. Are conservatives or
liberals best for the country? What
is the greatest movie of all time?
And we can debate who will be
the leading mobility provider in the
future — Tesla, Rivian, a legacy
automaker, or perhaps one of the
many EV startups in China? However, in the game of strategy for
our own organizations, we are
more than spectators. Few of us
will be on a championship team or
win a gold medal at the Olympics…or start a company that disrupts an industry. In fact, as many
as 75% of venture-backed companies never return cash to investors and the most likely outcome
is bankruptcy.
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The Toyota Way, 2nd Ed 2020 - excerpt by Jeffrey Liker | Liker Advisors
I do not pretend to be an expert on strategy. There are many
courses and books just on this
topic and it is a core field of study
in business schools. I do have a
few bits of advice:
First, develop your own strategy based on your products, services, markets and unique situation. As former IBM CEO, Ginni
Romett, deftly put it:
“
You build your
own
strategy.
You don't define
it by what another competitor is doing.
Tesla cannot be Toyota and
Toyota cannot imitate Tesla.
Each is in a very different situation
and needs to find its own way.
Second, find the right balance
of boldness and execution that fits
your situation. How flexible do
you need to be, internally and externally? How much control do
you need, internally and externally? If we consider automotive,
there is more consensus than I
have ever seen in the industry
about CASE. Everyone agrees
they need to move toward this
future, but how fast and with what
approach? Toyota has the luxury
to proceed at a more careful pace
than many of its competitors and
building on a strong foundation in
safety and reliability is paramount
as they move forward.
Third, do not fall into the trap of
thinking that just because you
have a wellarticulated
strategy, with
informative
figures and charts, that you are
done. You have only started. The
difference between developing the
strategy and executing against it
is night and day. The vision is just
that, a vision, based
on our best
guesses
about
the
future. We
will not really
know
what is going to happen until it
happens.
The execution should
be done in
bite-sized
pieces,
learning
from each
experiment.
Some
companies,
a very small
percent, will
legitimately conclude the great
disruptor with a radically better
business model is right around the
corner and they either radically
transform the company or go out
of business. In that case, shortterm excellence in how they get
things done may not be the right
priority. If you survive this tumultuous transformation, as you rebuild and mature and shift to
mass production, I submit that
excellence in execution and the
internal culture to support and improve execution will become increasingly important.
For the rest of us in the 99%, a
better model than becoming the
great market disruptor is the more
balanced Toyota Way. That does
not mean it is a waste of time to
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do environmental scans, or that it
is safe to assume there is no digital-based disruptive force for your
business. It does mean most of
us probably have some time to
work
our
way there,
focus
on
our unique
strengths,
and probably can do it
best with a
strong culture of excellence
and
motivated, capable, and
flexible
members
committed
to the company.
Do
not
fool
yourselves
into thinking
that
you
have it all
licked with a great strategy on paper and that turning that strategy
into execution is an easy or a
smooth journey, which it never is.
Can I say with certainty that Toyota’s strategy and execution will be
effective in the future as the industry undergoes radical transformation?
As Yogi Berra famously said:
“
It's tough
to make predictions,
especially about
the future.
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