February 14, 2010

Toyota, Getting Squished Like a Grape

Reality 1: Last year, the Toyota Prius was the bestselling car in Japan. On the back of innovations like the hybrid gas-electric engine, Toyota also became the largest car seller in the world by volume. Toyota is clearly the best, most forward-thinking auto company.

Reality 2: During the same period, a number of Toyota models developed (or exposed) a serious quality problem that has caused deaths and led to one of the largest recalls in product history. In its delayed response, Toyota has not won any prizes for openness and customer care. Furthermore its line of trucks took a huge hit when the auto industry collapsed. Toyota is clearly the worst, most slow-moving auto company.

F. Scott Fitzgerald once said that it takes "a first-rate intelligence...to hold two opposing ideas in the mind...and still retain the ability to function." But how can Toyota still be one of the best companies in the world and still make horrendous life-threatening mistakes?

In the green/sustainable business realm, this dichotomy is actually not so unusual. Wal-Mart is arguably the most important company in the greening realm, with its aggressive actions to reduce its own — and all its suppliers' — environmental impacts. But, according to a large segment of the population, it's also a force for thoughtless consumption and low-price-above-all. A consumer survey last year proved the point: Wal-Mart topped the list of most sustainable companies, and sat atop the list of the least sustainable as well.

Toyota itself has for years been prompting head-scratching about how green it really is. At the same time that the Prius was rising in popularity and winning the company accolades for a good chunk of the 2000s, Toyota was also embracing a big vehicle strategy and focusing sales efforts on its giant Tundra truck. Most pundits agree that Toyota's quality and revenue problems stem from trying to grow too fast — partially by putting a big push behind the Tundra. By pursuing truck sales, Toyota grew, but it also found itself in the same whirlpool of anti-big vehicle sentiment when oil prices peaked in 2008.

But it's not just that Toyota grew too fast. Comparing figures from the first eight months of 2008 vs. the previous year, it's clear that Detroit was already hemorrhaging sales before the economic collapse because they had missed the green wave. Meanwhile, Detroit's Japanese competitors, with their more energy-efficient, greener product portfolios, were selling more vehicles year over year. Toyota's results were right in the middle because it was trying to be all things. It was trying to be smart — to maintain two opposing strategies at once.

This kind of integrative thinking is a skill all modern leaders will need (see an interesting piece on this opposing-views idea and President Obama). Holding opposing views can lead to innovative ideas, and we desperately need radical innovation, or what I call "heretical" innovation, to solve our environmental ills.

For example, we can't forget that when Toyota asked why cars couldn't have solid power, good midsize interior space, nice design, and get better gas mileage, it was on to one of the most important innovations of our time — even if today the Prius is getting caught up in the quality concerns as well. As has been already argued, we shouldn't use the Toyota saga as a warning against innovative thinking. Instead we should look more closely at where their strategy worked, and where it failed.

What matters is holding the right kind of opposing views, because not all of them are safe or sustainable. As the wise Mr. Miyagi once told Daniel-san, "Walk on road, hm? Walk left side, safe. Walk right side, safe. Walk middle, sooner or later get squish just like grape." Pursuing leadership in lean manufacturing and design while at the same time trying to grow at all costs has badly damaged Toyota.

Sustainable growth, the kind that isn't going to get squished, is found by using the kind of integrative thinking that allows us to provide goods and services that are the same or better and also to use drastically less stuff: that's heretical, and involves the right kind of opposing views to try and hold in your mind. But where Toyota got in trouble with integrative thinking was when it combined sustainable growth in one part of its portfolio with uncontrolled, unsustainable growth in another, exposing it to the very risk its Prius strategy sought to mitigate.

No matter how green your company is elsewhere, that kind of unthinking growth is not a worthy or, it turns out, a profitable pursuit.

[This post appeared first on HBR]

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