By André de Waal published on www.indusbusinessjournal.com
On August 28th, 2009 an accident happened with a Toyota — an accident that triggered a recall of more than 10 million vehicles in 2009 and 2010 and a loss of more than $4 billion for fiscal year 2009.
In San Diego, the gas pedal of a Lexus became stuck under the floor mat, causing the car to run out of control and the road, killing all of its occupants. However, the accident did not set off a whole series of improvements at Toyota, as it once would have done in the manner that gained the company a reputation for its world-class processes. But Toyota was no longer the robust company of the earlier days, the company that had risen from the brink of bankruptcy in the 1950s and had achieved a stretch of 50 consecutive years of profitability — a record unheard of in manufacturing industries — to become the biggest car manufacturer in the world. A company known for its excellence in manufacturing processes and its continuous improvement culture, collectively known as “The Toyota Way.” Toyota was in 2010 rapidly losing its reputation as high performance organization and everyone wondered: what happened?
Before we can know this, we must first look at the definition of a High Performance Organization — what had Toyota been doing well?
An HPO is defined as “an organization that achieves financial and non-financial results that are exceedingly better than those of its peer group over a period of time of five years or more, by focusing in a disciplined way on that what really matters to the organisation.” HPOs outshine their competitors by achieving higher client satisfaction and loyalty, employee loyalty, better quality of products and services, and higher revenue and profits than its competitors – results which appeal to every manager.
The HPO Framework includes five factors of high performance:
- Management Quality: In an HPO, managers on all levels of the organization maintain trust relationships with employees by valuing their loyalty, maintaining individual relationships, and treating people fairly. They are decisive, action-focused decision-makers.
- Openness and Action Orientation: Management values the opinion of employees and involves them in business and organizational processes. HPO management allows experiments and risk taking, and sees mistakes as an opportunity to learn.
- Long-Term Commitment: Long-term gain is far more important than short-term profit. An HPO continuously strives to enhance customer value creation by learning what customers want and maintains good long-term relationships with all stakeholders by networking broadly, taking an interest in and giving back to society, and creating mutually beneficial opportunities.
- Continuous Improvement and Renewal: The process of continuous improvement starts with an HPO adopting a unique strategy that will set the company apart. It continuously simplifies, improves and aligns all its processes to respond to events efficiently and effectively. The organization also measures everything, so it is able to monitor goal fulfillment and confront the brutal facts.
- Employee Quality: An HPO makes sure it assembles a diverse and complementary workforce and recruits people with maximum flexibility to help detect problems in business processes and to incite creativity in solving them. An HPO continuously works on the development of its workforce to train staff letting them learn from others through partnerships, inspiring them to improve their skills so they can accomplish extraordinary results, and holding them responsible for their performances.
Each HPO factor consists of several underlying HPO characteristics. These five factors are the building blocks to an HPO.
During its reign as an HPO, Toyota embodied this definition, with the success and profits to prove it. Unfortunately, as we have seen with recent recalls, Toyota has apparently lost sight of one of the most important aspects of the HPO definition: focusing in a disciplined way on that which really matters to the organisation.
Here’s how Akio Toyoda, president of Toyota Motor Corp., phrased it: “Toyota has, for the past few years, been expanding its business rapidly. Quite frankly, I fear the pace at which we have grown may have been too quick. I would like to point out here that Toyota’s priority had traditionally been the following: first, safety; second, quality; and third, volume. These priorities have become confused and we were not able to stop, think, and make improvements as much as we were able to before, and our basic stance to listen to customers’ voices to make better products has weakened somewhat. We pursued growth over the speed at which we were able to develop our people and our organization, and we should sincerely be mindful of that.”
Subsequent analysis by both Toyota and outside researchers revealed weaknesses in the once strong company. Because of the rapid growth and the new tendency to put quantity above quality in order to achieve the top spot in car manufacturing, the company had lost its intense focus on understanding customers concerns, taking these seriously and addressing them as quickly and best as possible.
In addition, the company had become bureaucratic with outdated lines of communication, decision and accountability, and a tendency towards smugness causing it to take too long to respond to issues. Making matters worse, several business practices that had served the company well for many, many years were no longer applied, such as only building what was sold (thus keeping its inventory from building up), and only expanding when there was enough trained personnel to do so in order to maintain a high order of quality control. The company therefore was no longer practicing what it had theretofore preached and had made it so successful, specifically a relentless focus on quality. Management no longer held sufficient discipline to withstand increasing economic pressures to sell more at the expense of product quality.
Now the question is this: Will Toyota become an HPO again? It has now lost its position to General Motors as the world’s largest car manufacturer and has not yet returned to its former profitability. Severe damage has also done to its reputation and brand. However, it seems that the company has seized the crisis as a wake-up call to go back to its old ways and culture so that it is doing now more of what it had been doing right in all those decades before the recall crisis began. This is a promising sign for Toyota which hopefully will help it regain its “the poster boy” HPO image once again.
André de Waal is the academic director of the High Performance Organization Center in the Netherlands, and associate professor HPO of the Maastricht School of Management, the Netherlands. Order his new book “What Makes a High Performance Organisation, Five Validated Factors of Competitive Advantage that Apply Worldwide.” on this site.