For at least two decades, Toyota has been the benchmark in manufacturing. For automobiles, of course, but also for all other types of manufacturing, “the Toyota way” has been a path to success. Toyota’s attention to detail, unrelenting expectations regarding quality, the selling of “self-assurance” to the buyer that their car will be trouble-free, and building an organizational culture that delivered on these promises over and over again are all areas in which Toyota did better than anyone else on the planet.
Now, with the revelation that many Toyota automobiles are not as “well built” or as “safe” as we had all taken for granted, the image is tarnished. Perhaps Toyota is like most other organizations in promising things that they can’t deliver on and selling a brand that has little substance behind it?
In fact, if we are sober and reflect for a few minutes, it becomes clear that, given the sorry state of the world’s automobile industry, Toyota remains the benchmark. Despite the recent recall of several million vehicles—apparently the largest such recall in history—Toyota still stands out within the automobile industry for making cars that work, and for innovating in ways that are likely to shape our future. However, Toyota failed in that while pursuing growth, it neglected to pay attention to things that it already knew as an organization.
One of the things that Toyota knew and yet forgot—according to Paul Ingrassia, the author of a new book on the auto industry Crash Course (2010)—was to “never build...a new product in a new factory with a new workforce”. These “three nevers” offer a useful insight into how organizations must combine “knowing” with their “growing” if they are to succeed in a global marketplace.
The Toyota situation has, in fact, been generalized by Bala Chakravarthy and Peter Lorange in their book Profit or Growth: Why You Don’t Have to Choose (2007). The authors have argued that firms that are intent on growing—as opposed to protecting and defending market positions—can expand by either opening new markets, or offering new competencies, but not by doing both at the same time. Another way to state this is to say that global growth is based on what you know, and selectively learning new things. Abandoning everything that you know, be it about markets, technology, customers, offerings, all at once, is to proceed forward knowing very little.
One of the key reasons for the wisdom of Toyota’s “three nevers”, and why it was so costly to forget them, is the power of “tacit knowledge”. While it is relatively easy to transfer knowledge in formal formats and over great distances, it requires personal interaction to transmit “tacit” knowledge, or know-how that may be specific to an organization, from one individual to another.
Successful globalization is much too difficult a journey without the assurance of having some knowledge that gives your organization a basis for advantage. Otherwise, when moving into new product areas, in new geographic markets with new factory settings, there is no hope for such a “head-start”. By violating the “three nevers”, companies abandon hope of tacit knowledge transfer.
Perhaps it is relying upon existing product offerings in new markets; or else it is making new products in existing factories with experienced workforces; or maybe it is using a seasoned team of veteran managers and workers to tackle a new problem in an existing market. The key is always keeping some of the familiar while embarking on something new. To do otherwise is to risk following on the wrong Toyota path to success.
Bill Fischer is professor of technology management at IMD, a business school at Lausanne, Switzerland. Comments are welcome at firstname.lastname@example.org