Has Toyota Lost Its Way?

Probably not for long. But the company would be wise to heed Peter Drucker's advice about growth as it moves forward

by Rick Wartzman

The Toyota Way might just as well be called the Drucker Way.

As much as any company anywhere, Toyota Motor (TM) eagerly embraced many of the key principles that Peter Drucker first laid out in the 1940s and '50s: that corporations must move away from a "command and control" structure and cultivate a true spirit of teamwork at all levels; that line workers must adopt a managerial outlook and take responsibility for the quality of what they produce; that the enterprise must be steered by a clear set of objectives while giving each employee the autonomy to decide how to reach those results.

Though widely accepted now, plenty of U.S. companies at the time dismissed these notions as dangerously radical, if not downright loony. By contrast, they were "almost immediately translated into Japanese, eagerly read and applied," Drucker wrote decades later.

Indeed, "Drucker deeply influenced Japanese management thinking," Pascal Dennis noted in his 2002 book, Lean Production Simplified. "Companies like Toyota," he added, organized their manufacturing operations by soaking in and then "refining Drucker's ideas."

So what might Drucker say now that Toyota (BusinessWeek.com, 11/21/07) finds itself hitting a particularly rough patch of road?

I believe that his advice would, in the end, be quite simple: Slow down, even just a tad, in the quest to be the world's largest automaker.

Quality Slips

In the last few months, Toyota has been beset by a variety of troubles, including departures from its North American unit by several top executives; slumping sales (though things picked up again in October); and condemnation from environmentalists, who've challenged the company's commitment to fighting global warming.

Most serious have been rising concerns over the reliability of Toyota's vehicles. In October, Consumer Reports said quality had slipped so badly, it would stop giving Toyota's new or redesigned models an automatic stamp of approval. A series of high-profile recalls in the last couple of years have also tarnished the Toyota Production System, long the envy of the world.

Toyota has downplayed many of its problems, contending that as it continues to expand and prosper, more and more people are quick to criticize it. "The nail that stands highest gets hammered," a company spokesman told one reporter recently, invoking an old Japanese proverb.

Without a doubt, there is some truth to that. But make no mistake: It's shoddiness, more than schadenfreude, that's really the issue here.

Growth Can Make You Vulnerable

Toyota is bent on becoming the top-selling car company in the world, and as it hits the gas pedal on growth, it's obviously finding it tough to maintain its usual standards for quality. The company shouldn't be surprised by this. Perhaps, though, this was the one lesson from Drucker that Toyota somehow missed.

"Growth at a high rate and for an extended period is…anything but healthy," Drucker declared in Management: Tasks, Responsibilities, Practices, his 1973 classic. "It makes a business—or any institution—exceedingly vulnerable. It makes it all but impossible to manage it properly. It creates stresses, weaknesses, and hidden defects which, at the first slight setback, become major crises."

In fairness, it's General Motors (GM), even more than Toyota, that seems caught up in the game of who's the biggest. After Toyota took over as the world's leading seller of automobiles earlier this year, GM Chief Executive Rick Wagoner sounded like a kid who'd just lost his marbles at recess. "I like being No. 1," he said.