One of Toyota's guiding principles in times of crisis is genchi genbutsu, or "go and see." So to find out for myself what the changes meant for a company I had been covering for more than 20 years, I interviewed Toyota executives in California and New York, and then flew to Japan.
Of all the woes Toyota has suffered, none has stung like the recall crisis of 2009-10. Ignited by reports of horrific accidents, some fatal, caused by cars that ran out of control and couldn't be braked to a stop, it eventually involved the recall more than 8 million Toyotas and Lexuses -- equivalent to a year's production. Independent investigations turned up no mechanical or electronic defects -- only some misplaced floor mats and sticky accelerator pedals to go along with driver error -- but exposed major flaws in the corporate culture. Toyota, it turned out, was still being managed the way it had been in the 1950s: Every decision was tightly controlled in Japan; the U.S. was treated like a vassal state. When American managers found defects in vehicles, they had to follow a tortuous bureaucratic process to register their complaints in Japan, where they were often met with skepticism and defensiveness. As it had long feared, Toyota had succumbed to "big-company disease."
Consumer confidence in its cars plummeted, and Toyota's higher-ups were shaken. "We learned we are not so ahead of competitors as we might have thought," Yoshimi Inaba, who heads sales and administration in the U.S., told me. "We were a little complacent." Toyota began to develop quicker reflexes. When a defect was identified in a Lexus SUV, Toyota organized a recall in just eight days. But it balked at delegating more executive authority to America. Rather than designate one person to head all of its North American operations, it maintained its traditional silo structure. Its giant sales operation in Southern California, and its equally large manufacturing complex headquartered in Kentucky, continued reporting to different executives in Japan.
Just as it was trying to put the recall crisis behind it, the new management was tested again in March, when an earthquake and massive tidal wave disrupted production. The tsunami damaged plants in the north of Japan, disrupting the supply of over 500 parts, and Toyota couldn't find replacements. Its first-tier, just-in-time suppliers near Toyota City were not directly affected, but up north were second- and third-tier suppliers that Toyota did not know much about.
Akio assembled general managers of departments such as body engineering and powertrain in Japan, and took the unusual step of instructing them to restore production and not waste time reporting upward. They sent two-man teams of engineers to visit each supplier plant and to identify and locate backup parts until the suppliers were running again. By April, unavailable parts were down to 150, and by May, according to Liker's count, all but 30 of the 500 parts were available. Toyota solved the problems in half the time expected, but Liker figures the company still lost 800,000 production units -- 10% of its annual output. Plans to make up most of the shortfall through overtime work were pushed back by October floods in Thailand that affected about 100 suppliers. As a result, inventories in North America won't be completely replenished until March.
