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GROWING AND KNOWING Lessons from the Toyota recall

By Professor Bill Fischer - March 2010

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GROWING AND KNOWING I Lessons from the Toyota recall

For at least two decades, Toyota has been the benchmark in manufacturing. For automobiles, of course, but also for all other types of manufacturing, “the Toyota way” has been a path to success. Toyota’s attention to details, unrelenting expectations regarding perfect quality, the selling of “self-assurance” to buyers that their cars will be trouble-free, and building an organizational culture that delivered on these promises over and over again are all areas in which Toyota did better than anyone else on the planet. Now, with the revelation that many Toyota automobiles are not as “well-built” or as “safe” as we had all taken for granted, the image is tarnished. Perhaps Toyota is like most other organizations in promising things that they can’t deliver on and selling brands that have little substance behind them? In fact, if we reflect for a few minutes, it becomes clear that, given the sorry state of the world’s automobile industry, Toyota remains the benchmark. Despite the recent recall of several million vehicles − apparently the largest such recall in history − Toyota still stands out within the automobile industry for making cars that work and for innovating in ways that are likely to shape our future. However, Toyota failed in that while pursuing growth, it neglected to pay attention to things that it already knew as an organization. The three nevers One of the things that Toyota knew and yet forgot, according to Paul Ingrassia, the author of a new book on the auto industry titled Crash Course, was to “never build ... a new product in a new factory with a new workforce.” These “three nevers” offer a useful insight into how organizations must combine “knowing” with their “growing” if they are to succeed in a global marketplace. As we move into a knowledge-intensive era, it is not surprising that “knowing things” will become as important, if not more so, than “making things.” Knowing what to make, how to make it and who to make it for will be the keys to success. It will increasingly be about organizations that know more than other organizations and which have figured out how to know more. In other words, smarter organizations. Toyota has always been among the “smartest” organizations, yet here in their pursuit of ever-greater global growth is an instance where they weren’t very smart, after all. The Toyota situation has, in fact, been generalized by two IMD Professors, Bala Chakravarthy and Peter Lorange, in their book Profit or Growth - Why You Don’t Have to Choose. The authors argue that firms which are intent on growing − as opposed to protecting and defending market positions − can expand by either opening new markets or offering new competencies, but not by doing both at the same time. Clearly, this is another way of stating Toyota’s three nevers. Another way to state this is to say that global growth is based on what you know and selectively learning new things. Abandoning everything that you know, be it

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GROWING AND KNOWING I Lessons from the Toyota recall

about markets, technology, customers, offerings, etc, all at once is to proceed forward knowing very little! Passing on knowledge One of the key reasons for the wisdom of Toyota’s “three nevers”, and why it was so costly to forget them, is the power of “tacit knowledge.” According to Professor Ikujiro Nonaka, one of the founders of the field of knowledge management, knowledge can exist in either a hard or formal form, such as in documents, books or memorandums, or in a “tacit” form such as “know-how” in the heads of people familiar with particular work arrangements. While it is relatively easy to transfer knowledge in formal formats, even over great distances, it requires personal interaction to transmit “tacit” knowledge from one individual to another. In fact, we might not even realize that we possess such tacit knowledge until a conversation with a colleague crystallizes the thought and we recognize what it is, in fact, that we know. The problem with violating the “three nevers” is that we abandon all hope of tacit knowledge transfer. By moving into new product areas in new geographic markets with new factory settings, there is no hope for a “head start” or fast advantage based on exploiting existing knowledge. Nor, given the physical and cultural distances that the three “news” present is there much hope for easy tacit knowledge transfer. Successful globalization is much too difficult a journey without the assurance of having some knowledge that gives your organization a basis for advantage. Perhaps it is relying upon existing product offerings in new markets, making new products in existing factories with experienced workforces or using a seasoned team of veteran managers and workers to tackle a new problem in an existing market. The key is always keeping some of the familiar while embarking on something new. To do otherwise is to risk going down the wrong path.

Bill Fischer is Professor of Technology Management at IMD, the leading global business school based in Lausanne, Switzerland. He directs IMD’s Mastering Innovation Globally program which will be held in Tokyo (June 7 – 9, 2010) and Hong Kong (October 25 – 27, 2010).

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GROWING AND KNOWING I Lessons from the Toyota recall

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