The Toyota Way – Principle 1

Base management decisions on a long-term philosophy, even at the expense of short-term financial goals

Toyota is a very cost-conscious lean organization, aware of the cost every decision causes. Even so, cost reduction is not one of the essential principles pursued by Toyota.

The Toyota Way provides an alternative model. This model reflects what happens when more than 370,000 people are aligned toward a common purpose that is greater than just making money. The starting point of Toyota’s business is to generate value for customers, society and the economy, with teams that grow and learn every day. As Toyota explains, “Monozukuri wa Hitozukuri”: develop people first,then build products.

Toyota is focused on customer satisfaction. Makes me feel like I found a home. The learning process came from the people I met in Japan. The coordinating executives from Japan were there not only to lead the development of the company but also the development of the employees. The working environment and mental security allowed you to work the way you knew was right. We saw it directly.”

Jim Press,
Toyota employee, former Ford.

In the early 1980s, Toyota established a joint venture with GM. It was the first plant abroad and they did not want to go it alone. They agreed to teach GM the principles of the Toyota Production System (TPS). Toyota proposed to start with a van factory in Fremont, California, which GM had closed in 1982. They decided to start it under the principles of the Toyota way. Dennis Cuneo, former VP of Toyota Motor Manufacturig North America, was a lawyer for Toyota at that time. He explains:

The perception that everybody had at that time was that the Toyota Production System just worked people to death. It was basically understood as “speed up!” In fact, I remember the first meeting we had in the union hall with the union leader, named Gus Billy. He was sitting at the end of the table and we were talking about the Toyota Production System, about kaizen and so on. He said, This seems to me to be a production speed-up. It´s the whole concept of making all these suggestions trying to suggest your way out of a job.”

This was not an isolated attitude of hostile behavior. Even when the plant belonged to GM, the union local had a reputation for activism to the point of calling wildcat strikes. Even so, when they took over the management of the plant, against GM’s advices, Toyota decided to bring back the local UAW and the people who represented this union in the plant. Cuneo said:

I think it surprised GM. Some of the labor relations staff advised us not to. We took a calculated risk. We knew that the former GM workforce needed leadership – and the Shop Committee comprised the natural leaders of that workforce. We had to change their attitudes and opinions. So we sent the shop committee to Japan for three weeks. They saw firsthand what the TPS was all about. And they came back “converted” and convinced a skeptical rank and filethat this Toyota Production System wasn’t so bad.”

In fact, under Toyota’s new management, when the old factory reopened in 1984, it outperformed all other GM plants in North America in productivity, quality, space and inventory turns. It is often used as an example of how TPS can be successfully applied in a unionized U.S. plant with workers who had grown up learning the traditional culture of General Motors and the traditional adverserial relationships between union and management. Cuneo says the key is building trust with the workers:

We built trust early on with our team members. GM had problems selling the Nova in 1987 to 1988, and they substantially cut the orders to our plant. We had to reduce production and were running at about 75 percent capacity, but we didn’t lay anybody off. We put people on kaizen teams and found other useful tasks for them. Of all the things we did at NUMMI, that did the most to establish trust.

The philosophies described in this principle had not been developed overnight, so Toyota will not suddenly abandon them. John Shook, reflecting what he learned as a director at Toyota, explains this aspect well:

Toyota intuited many years ago that it must focus on survival and the integration of all corporate functions toward ensuring that survival. Thus, “the Toyota Way is the result of efforts to direct all activities to support the goal of firm survival. This is radically different from the simple objective of “making money,” though in most micro-instances of actual work performance, they may appear to be virtually the same thing ….”
I posit here that Toyota has evolved the most effective form of industrial organization ever devised. At the heart of that organization is a focus on its own survival. It is this focus that enables Toyota to behave as a natural organism, enabling it to evolve as a truly emergent system.

John Shook, 2002