The concept of innovation is quite literally the driving force behind Toyota Motors Corporation. Toyota’s history, foundation, guiding principles, and practices are guided by the philosophy of creating innovative ideas and design concepts.
As one of the top ten profitable companies in the world, Toyota is achieving market leadership in the automobile industry, delivering some of the best new innovations the world has ever seen. Toyota is the first to introduce the breakthrough Hybrid car technology, capturing energy otherwise lost by coasting or braking to recharge the battery. Introduced in 1997, the innovation of the Prius design and the hybrid technology combined with a conventionally powered gas engine has lead the Prius to beat all three leading American car company sales the first quarter 2007, including its Japanese counterpart, Honda. This is the first time a foreign automobile company has done so.
SO HOW DO THEY DO IT?
In 1898, Sakichi Toyoda founded Japan’s first steam-powered loom, a handloom company. From its humble start Toyota Motors Corporation began as Toyota Automatic Loom Works. During the early 1900’s the company looms were considered the “highest quality, lowest cost, and easiest to use,” Matthew E. May, a senior University of Toyota advisor writes in his book “The Elegant Solution: Toyota’s Formula for Mastering Innovation”. The term “Elegant Solution” is about “finding the aha solution to a problem with the greatest parsimony of effort and expense.”
Striving for creativity, simplicity, intelligence, subtlety, economy, and quality, to achieve elegant solutions, Toyota’s Innovation Factory was developed with these objectives in mind. This is where over 2,500 new ideas are implemented every day. Steering Toyota’s business model is the Guiding Principles for Driving Innovation and the staff at the Innovation Factory.Everyday Toyota strives to discover ways to do something better than it’s ever been done before.
They look to ingenuity to smooth the progress of new ideas to provide the cleverness, resourcefulness, initiative, originality, inventiveness, creativity, and skill, to achieve innovation. They coin it “The Art of Ingenuity.” Toyota’s team searches for optimal solutions – solutions that yield ‘low-cost, low-risk, high-impact breakthrough ideas,’ as they have for over a century.
Innovation happens at Toyota through the ‘systematic pursuit of perfection at every level, every department, in everything Toyota does.’2 Perfection equates to excellence, precision, and flawlessness at Toyota. The “Pursuit of Perfection” equates to the excellence, precision, and flawlessness Toyota pursues. This chase for perfection creates better processes, products and services for tomorrow and today. Making many small steps to create sustainable innovation.
The “Rhythm of Fit” suggests that great innovation has to ‘fit’ – fit the company, the current time, and the system. Toyota believes that great innovations shape and change the attitudes and behaviors of people, the way we think, we work, and the way we live.”2 So the Rhythm of Fit fits the current time and environment.
An example of this ‘fit’ is the Toyota Prius, a hybrid car that provides plenty of room in the inside, good performance; safety features, and has great gas mileage. Toyota envisioned the changing environment of higher gas costs and pollution when developing the car, making it economical to drive, environmentally friendly (or green innovation), and without sacrificing the need for roominess, safety and performance. Today the Prius is the number one Hybrid car in America.
Research shows that just ten years ago Toyota Motor sales in the US wassuffering because of a backward IT infrastructure. The US distributor of cars and trucks built by Toyota Motor Corp. found itself managed with directionless data.
The problem; data was not distributed throughout most departments. “Toyota U.S.A. was generating sales and market data at a frightening rate, but it had no way to use the information strategically. Internal departments regularly failed to share information, and, by the time they did generate so-called “actionable” reports, it was often already too late.”3
In 1996, Toyota hired Barbara Cooper, a CIO with ‘two top tech posts already to her credit,’ to head up its IT department. Cooper brought Toyota through the painful evolution in data-management strategy, “guided by Cooper but driven by the business side, and the results have been impressive.”3
Over the past eight years Toyota U.S.A. has increased the volume of cars it handles by 40 percent while increasing head count by just 3 percent. Reaching the highest profit margins in the automobile industry, with its stock performance at record highs. Innovation and a solid management team with the foresight and vision to see it through has contributed to the impressive performance at Toyota.
Early 2007 both “General Motors and Ford struggle to remake themselves and rejoin the car wars, one company is proving what a successful American carmaker can look like: Toyota.”4
GM and Ford are bogged down by dozens of models competing for the same buyers, whereas Toyota has a well-chosen lineup with cars and trucks that sell in big volumes, including luxury models that command a higher prices.
Earlier this year both GM and Ford announced several manufacturing plants will close, and some already have. Toyota is opening new ones, with lower labor costs, health care and retirement plans are also lower. GM and Fordare trying to stop the bleeding, to regain lost market share.
“They are what an American company should be,” said Jeffrey Liker, a professor of engineering at the University of Michigan and the author of “The Toyota Way,” the best-selling book that examines Toyota’s business methods.
COMPANY INFORMATION AND GROWTH
Toyota’s operations were established in North America in 1957, they currently operate 13 manufacturing plants in North America. Two additional manufacturing plants are slated to open by end of 2010 in North America. “In April 2006, Toyota Motor Manufacturing North America, Inc., and Toyota Technical Center consolidated to form Toyota Motor Engineering & Manufacturing North America, Inc. (TEMA).“ 2 TEMA is responsible for Toyota’s North American engineering design and development, R&D and growing manufacturing activities in the U.S., Canada and Mexico.
oProduction of more than 1.55 million vehicles and 1.4 million engines at Toyota’s North American manufacturing facilities in 2006.
oToyota will have the annual capacity to build nearly 2.2 million cars and trucks in North America by 2008.
oThe annual purchasing of parts, materials, goods and services from North American suppliers has totaled more than $29 billion.
oOver 41,000 employees are at work in North America alone. Toyota’s investment in the US is currently valued at more than $18.6 billion, including sales and manufacturing operations, research and development, financial services and design.
STATS WORLDWIDE 2
Company TypePublic – NYSE: TMFiscal Year-EndMarch2006 Sales (mil.)$179,083.01-Year Sales Growth 3.7%2006 Net Income (mil.)$11,681.01-Year Net Income Growth7.1%2006 Employees285,9771-Year Employee Growth7.6%
The priority at Toyota is to maximize its returns to shareholders while improving and strengthening the corporate culture. Toyota has aggressively expanded its business to continue the increase on earnings per share.
With respect to the dividends, Toyota targets a consolidated dividend payout ratio to 30% for the medium —to long term, with a greater distribution of the earnings. They take into consideration various factors, including the business results for each fiscal year and new investment plans. Toyota responds to changes in the business conditions, having also acquired its shares to increase and improve capital efficiency.
EXECUTIVES FOR TOYOTA MOTOR CORPORATION2
Chairman Fujio ChoPresident and Member of the BoardKatsuaki WatanabeSenior Managing Director, Finance Takeshi Suzukiand Accounting Group and Memberof the Board
PRIMARY AND SECONDARY INDUSTRIES
Automotive & TransportAuto Manufacturing (primary)Financial ServicesoLendingoAuto LendingIndustrial Manufacturing
NEW CORPORATE MODELS TO EMULATE
Toyota is fast becoming one of the new corporate models to emulate. Many companies have evaluated Toyota’s business model hoping to bring fresh ideas back to their company. Executives realize that even the smallest objective cannot be overlooked. Many companies, including Wipro, LTD in India “have decided to use Toyota as a model for overhauling its operations, with its aim to make business processes simple and smooth.” 1 Many companies today have an infatuation with the Toyota-like efficiency and business performance.
THE ELEGANT SOLUTION
Toyota maintains that you must have a real understanding of the innate customer need. The business model that they live by does not allow for short cuts, complex ideas, or expecting to hit a ‘home run’ every time. What are expected are innovative ideas—ideas that stretch beyond the current problem. The framework and policy for driving innovation and creating elegant solutions is continually adhered to at Toyota’s Innovation Factory, where the Guiding Principles for Driving Innovation and its three principles have contributed to making Toyota the market leader it is today.
1 Taking A Page From Toyota’s Playbook, Business Week, August 22, 2005 2 www.totota.com3 Toyota’s Business Intelligence: Oh! What a Feeling, Dan Briody, October 1, 2004 4 U.S. has one rising carmaker: It’s Toyota, Micheline Maynard, NYT, January 13, 2006 5 www.cnn.com/money, Toyota Performance January 5, 2007