A crisis of management

Toyota's engineering philosophy has failed to adapt to today's electronics-heavy cars

March 02, 2010|By Kenichi Ohmae

The Toyota problem: Where the car giant went wrong

During the past few decades, Toyota has built a strong presence in the United States by serving its consumers well and doing what the U.S. government has wanted. Now, it has stumbled badly, largely because its greatest strength - the Toyota way of "accumulation of small improvements," or kaizen philosophy - has turned out to be a weakness in the age of complex electronic engines.

There is every reason to believe Toyota will fix its technical and management problems. The question is whether, panicking in the very un-Japanese glare of the American media and political spotlight, it will dig a deeper hole by losing the air of trust and reputation for competence among customers it has spent so long building up. That would be bad for Toyota and for America.

Most auto companies in the past, including Ford and GM, have had recall problems like Toyota. They all seem to try to hide the early evidence of flaws, even if they affect safety. Today, however, with the electronic programming of cars, many of the problems that are emerging - such as the flaws in the braking system of the Prius - are of a new nature. They are judgmental engineering calls. If they can be corrected by readjusting the setting on recalled cars, then Toyota can handle that quickly.

But what we are seeing may be a more fundamental problem that has to do with the engine control unit as a whole. In an average Toyota, there are about 24,000 inputs and outputs, with as many as 70 computer chips processing information and sending it on to other chips to operate the engine control units.

Such complex systems are a problem these days for all auto manufacturers - Germans and Americans as well as Japanese - because about 60 percent of a modern automobile is electronics. What we see with Toyota in particular is that this new electronic complexity has overwhelmed the famous concept of kaizen that has made Toyota such a quality brand worldwide. This company has so perfected kaizen that it has lost the big picture of how the whole electronic engine - and thus overall safety - works. This is a limitation of kaizen philosophy.

If Toyota does not recognize this and tries to chalk all its problems up to floor mats touching the accelerator, or resetting a computer, it will miss the real issue. Where Toyota has failed is that, rather than review the overall safety of the engine unit, it has focused instead on diagnosing the function of many thousands of pieces of an electronic engine.

What this company is missing is the human factor: a single person who has a comprehensive understanding of the details of the engine and how the parts interact and work as a whole.

In the old days, one chief engineer used to design everything. This was true with ships and airplanes as well as nuclear reactors. Now, design and production is so segmented that there is no one in the current generation of Toyota engineers who seems to have the whole picture.

What this suggests is that Toyota has to come up with a new organizational ethos that can oversee the crucial safety features that may have been compromised by so much incremental improvement over the years. A new system needs to supplement the kaizen philosophy, one that perfects the big picture of engine control safety instead of just the small picture of components.

I believe Toyota can meet this challenge. The challenge I fear it will fail to meet is the psychological one, enveloped as the company's leaders seem to be in a sense of panic at being attacked politically and in the press in their most lucrative market, the United States.

As America brings Toyota to account on safety, it must also put the company in the right perspective. Toyota has also always done what the American market and politicians demanded, without losing quality or productivity. The U.S. asked Toyota to come to the U.S. to produce cars instead of exporting them from Japan, and to use up to 50 percent local content.

Today, 2.5 million Toyotas are produced annually in the U.S. at more than a dozen plants; this has created many jobs. Toyota's annual spending on parts, goods and services from hundreds of U.S. suppliers totals more than $22 billion.

Ninety-five Japanese component companies were transplanted from Japan to supply Toyota through its "just in time" manufacturing process, building up a component supply network along the Mississippi Valley that didn't exist before.

Toyota is on the hot seat today. But everyone should understand that the issue at hand is the trade-off between complexity and safety in an age where electronics and computers dominate the vehicles we all use on a daily basis.

Kenichi Ohmae, Japan's most prominent management guru, was a senior partner of McKinsey & Co. and a co-founder of its strategic consulting arm. This article originally appeared in The Christian Science Monitor.

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