Top ideas from Toyota to achieve sustainable competitive advantage and remain future-proof!

Do you want to achieve a long-term and sustainable competitive advantage for your business? 

What are some of the time-tested principles that companies can emulate from Toyota’s Lean approach?

How does the Toyota way challenge conventional thinking of other companies?

Toyota introduced Lean thinking to the world and since then it has become a great obsession in the west.

What started in the confines of the auto manufacturing sector the corporate world has now been adopted in other sectors like healthcare, Banking, IT, to name a few.

Even the uncertain startup ecosystem is seemingly going through a revolution since Eric Ries had published his book, “The Lean Startup”.

Despite mass-proliferation of Lean concepts, companies world-wide are yet to emulate Toyota’s consistent performance levels and the long-term sustainable competitive advantage it has created for itself.

They show stellar results year over year(albeit a few recalls in the recent times); be it consistent sales growth for over 50 years, higher margins, higher market capitalization, and stellar sales rank to name a few.

So what is the secret sauce behind Toyota’s continuing success whereas western companies are far behind and are constantly jumping from one fad to another?

Here are some top ideas around how Toyota differs significantly from its western counterparts.

Results Vs Means

The focus of Western corporate world is all about quantitative/financial results with little or no regard for the means of achieving them.

It is seen as a ‘command and control’ approach often resulting in ‘blame game’/ ‘hiring & firing’ situations often evidenced there.

In contrast, Toyota’s approach is focussed more on creating a shared need, both top-down as well as bottom-up, using the Hoshin Kanri approach. 

Hoshin means direction and Kanri means administration.

It is an approach in which the top leadership sets long-term strategic objectives called True North Goals.

These are then broken down into smaller goals, at department and individual levels using a structured approach.

Using the 2-way, ‘catchball’ communication concept which seeks to get opinions of both managers and employees through meetings and interactions, everyone understands the ‘Why’ behind the actions.

Deployment of the actions become almost frictionless.

Hoshin Kanri is the most important aspect of the Lean thinking philosophy, however, it has still not gotten the mainstream attention as companies are obsessed more with the tools than the philosophy. 

This long-term strategic approach alone can be a source of sustainable competitive advantage for companies in an uncertain world.

Innovation Vs Kaizen

Toyota believes that management has two functions: Maintenance and improvement.

Maintenance is all about maintaining current work standards with policies and discipline.

Problem-solving is to address any deviations that arise out of processes from these standards.

Improvement is to challenge the current standards to improve to a future state, which is the concept of Kaizen.

The term Kaizen refers to small improvements made by everyone on the team which fundamentally is a common-sense approach to improvement.

It is about human effort, teamwork, and self-discipline.

Also, an important point to note is that problem-solving is not Kaizen in Toyota.; as it is just fixing something that is broken. However, in western corporate cultures, such ‘fixes’ are glorified.

In contrast to problem-solving, Kaizen emphasizes the change in previously established standards for an improved future state.

Western corporate leaders are overly fascinated with innovation and tend to disregard Kaizen’s long-term benefits; which is more about developing people than bringing forth solutions.

Direction Vs Empowerment

Toyota strives towards empowering its employees to constantly improve the processes in their respective areas through Kata philosophy.

In contrast, western culture emphasizes change management through the direction set by the top leader which then percolates to the last level in the organization, without the catchball type of communication as mentioned previously.

Confusion and chaos reign.

For example, the senior leadership of a company in the US, wanted a 25% improvement in operating profit and sent the message to its functional leaders.

How did the leaders react?

In order to fulfill the leadership needs, they scrambled and came up with the easiest plan; (ie) layoffs as a means to reduce costs thereby improving profits.

Companies that are overly obsessed with such short term goals will eventually fail. 

Sustainable competitive advantage is indeed built on the strong foundation of people and their development.

This can happen only where there is stability of workforce and a culture of relentless cost-focus as the means for sustianability which leads into the next idea in this article.

Profit focus Vs Cost Focus

Western companies pay a lot of emphasis to profits. Of course, making money is an important goal in any business, however, the means to achieving that is even more important.

The equation Selling Price = Cost + Profit is very much applicable to such companies where the price that the customer pays is determined by a pre-defined level of profits that they would make.

However, in Toyota, it is the same equation is applicable but is rewritten as Profit = Selling Price -Cost. What this means is that Toyota very well understands that the Selling price is determined by market forces on which they do not have much control on.

They, therefore, put a relentless focus on cost reduction through systematic methods with the elimination of 3Ms applicable to any business: Muda(waste), Muri(Unnecessary burden on individual employees) and Mura(uneven workloads on people/machines).

Conventional Business Methods Vs Toyota Kata

The future is unpredictable and current solutions/value proposition that a business offers will alone not result in long-term competitive advantage let alone their survival.

It is, however, the organization’s ability to develop human potential to continue generating solutions in an uncertain environment.

According to Mike Rother, author of ‘The Toyota Kata’, an organization’s competitiveness, ability to adapt and its culture gets established as a result of human behavior; which arises from routines and habits by which they conduct themselves every single day.

Such routines are called Kata in Japanese.

It is a methodical approach to create a Kaizen or continuous improvement culture in which the employees at all levels conduct small but repeated experiments to improve the current state of their process or workplace.

Just like muscles develop a memory of their own with repeated exercise, such experiments enable people to constantly develop their intellectual curiosity to solve problems in a way that it becomes second nature to them.

Thus, the Toyota management system aka Lean system is one that is human-centric.

It is all about unleashing human potential to continuously learn, adapt and solve new challenges. 

The human element, is undoubtedly, the secret sauce for Toyota’s sustainable competitive advantage!

What do you think of the ideas above? Please share your ideas/comments in the section below.