Why Toyota Is Not Lean Thinking's 'Rosetta Stone' - Raphael L. Vitalo, Ph.D. and Christopher J. Bujak

Introduction

In the absence of foundational knowledge,¹ Lean thinking can only be explained and extended to address new situations by turning to the Toyota Motor Corporation’s practices. In this sense, Toyota functions as their “Rosetta Stone.” It is used to decipher what is and is not “Lean thinking.”

There are problems, however, in using a case example, such as the Toyota Motor Corporation, as your guidance for conducting commerce. First, every individual demonstrates variation in his or her behavior across situations and over time. When one studies a large, international organization, the problem of variation is greatly magnified by the numbers of people, work settings, and geographical locations in which the company operates. Second, people are sensitive to how they are perceived. We all have an image of ourselves, but few of us have an “objective image”—i.e., one based solely on empirical facts verified from multiple perspectives. Commercial organizations are especially sensitive about their image, as public perceptions can affect their commercial success. Hence, self-report is subject to bias. That bias may be quite unintentional, yet real. Third, if you have worked at the executive level within large corporations, you are aware that there are levels of decision-making and action that are kept confidential. The record of these discussions is not publicly available. Hence, not all the facts about a company are available for review. Fourth, there are almost always gaps between written policy and action. Within the Human Resource function, for example, compensation rules may be relaxed for specific individuals, usually executive-level employees. These decisions are made on a case-by-case basis and their record, if one exists, is also not publicly available. As another example, take the comparative compensation between male and female employees. When studied empirically, compensation paid to males is discovered to be higher than the compensation paid to females performing the same work, at the same level of proficiency. The senior author has done such employee compensation studies and documented the male-female discrepancy. In every such study, the existing, written compensation policy was ‘sex neutral.’ Never did they direct unequal pay.

To derive usable information about the actual behavior of an institution, therefore, one must employ a sophisticated sampling strategy that draws facts from multiple perspectives, controls for confounding variables, and uses objective records. The sampling must include observations from all the different levels of the organization, across its various departments and locations, and across time. The researcher must have access to the non-public aspects of the organizational decisions and actions taken by the subject institution. Even at its best, the image of conduct derived is only probable, not certain. Once assembled, the information must be categorized and systematically assessed to discover what if any trends in conduct may be properly asserted as being typical of an organization.

Finally, even when you have implemented such a well designed naturalistic study, you are only left with verified conduct and its apparent results—not with knowledge that explains why the conduct and results correspond. One could use such findings to generate hypotheses about the causes that might explain of the correspondence between observed behavior and results, With these hypotheses, one could undertake controlled experiments to validate them. To our knowledge, the Lean community has not done this. At best, therefore, one can only imitate what has been documented. With regard to Lean thinking, however, knowledge is expected to drive behavior, not imitation.

A Real World Example of the Limits of Observation

In the monograph, The Incompleteness of the Lean Enterprise Model, Vitalo and Bujak (2019) identify a number of market strategies that Capitalist businesses use and ask whether a Lean enterprise can use them. Here, we address three such business strategies: externalizing costs, withholding negative information from the public, and deception. If you use Toyota’s behavior as your reference for deciding the question of use and picked a point in history when otherwise hidden information became revealed, you would find that Toyota has indeed used these methods to advance its profits. Specifically, it withheld information and released inaccurate information about company actions and product defects from customers and government regulators in order to protect its profits. If Toyota had revealed that information, it would have provoked a vehicle recall and exposed the company to liability claims. Thus, Toyota externalized the cost of poor quality to its customers who were left to pay for repairs of the defect and any other damages it might have caused. Profits before customers is not consistent with lean thinking as generally understood.

Based on public records, we can say that Toyota practiced these strategies during the period of 1995 through 2010. The first example concerns Toyota’s handling of a steering mechanism problem with their Hilux Surfs and 4Runner vehicles in the 1990s. The second example concerns how it addressed unintended acceleration problem of some of its vehicles and two related problems with gas pedals installed in various models in the 2000s.

Steering Mechanism Problem—Hilux Surfs and 4Runners

The Hilux Surfs and 4Runner’s steering mechanism problem became public in Japan in 2004. Its exposure was the result of a police investigation into the crash of an out-of-control Hilux Surf. The crash caused serious injury to five people. The police investigation into this accident triggered a scandal that provoked Toyota to acknowledge the problem and recall 330,000 affected Hilux Surfs and 4Runners in Japan.
While this public revelation occurred in 2004, facts make clear that Toyota was aware of the problem with the Hilux Surfs and 4Runners from the beginning of 1996. They also reveal that the problem extended backwards to earlier models. In 1996, “Toyota engineers discovered that a crucial steering mechanism could fracture on the Hilux Surf, which was sold as the 4Runner in the United States” (Kanter, Maynard, and Tabuchi 2010). While it corrected the flaw in 1996 models, Toyota took no action to alert the owners of the 1995 and earlier models of the danger. After Toyota received a rebuke from the Japanese government in 2004, it executed the recall in Japan but not in the U.S. for its 4Runner model (Kanter, Maynard, and Tabuchi 2010). Thus, it left its American customers at risk of harm and bearing the cost of repair for the defect and any damage or harm its failure caused.

Further, other Toyota truck models sold in the U.S. (e.g., Toyota 4x4 and T100 pickups) used the very same linkage, a steering relay rod that was found defective in Japan. Rather than recall these vehicles, Toyota told the U.S. National Highway Traffic Safety Administration (NHTSA) in October 2004 that it would not conduct a recall in the U.S. because it had not received information here indicating a problem with the part. This was a lie. As later reported in the Los Angeles Times, “Documents entered into four lawsuits filed in Los Angeles ... revealed that Toyota had received numerous consumer complaints dating from 2000” about linkage problems with its Toyota 4x4 and T100 pickups (Bensinger and Vartabedian 2009).

Unintended Vehicle Acceleration and Gas Pedal Problems

As to unintended sudden acceleration and gas pedal problems, the first instance was uncovered in 2003. Internal Toyota documents, discovered during a court case filed against Toyota, revealed that earlier in that year a company technician described a case of sudden, unintended acceleration in a Toyota model. According to a court document filed in U.S. District Court in California in 2010, the technician, in 2003, “requested immediate action due to the ‘extreme dangerous problem’ and [said] ‘we are also much afraid of [the] frequency on [sic] this problem in the near future’” (Whoriskey 2010).
Later in 2003, routine testing revealed that the Sienna minivan had a problem with a part that could come loose causing the gas pedal to stick, potentially causing unintended acceleration. It affected both current and previous year models. Toyota redesigned the part and installed it in 2004 models, but chose once again not to tell owners who bought Sienna's before 2004. In 2009, when investigations revealed what Toyota had done, it explained its action on the basis that “a safety recall was not justified” and the corrected part was simply “an added safety measure” (Bensinger and Vartabedian, 2009).
Yet another problem with gas pedals was uncovered in 2008 in Europe. Toyota responded by making a design change in the summer of 2009 in the manufacturing of cars in Europe going forward, but did not make the change to the same models produced elsewhere. Also, it did not recall the already sold cars in Europe because the company considered the problem a “consumer satisfaction” issue. Then, almost a year later, after the problem was publicly exposed in the U.S., a recall was issued.

As to the U.S. recall, Toyota claimed that it did not issue it earlier because it just discovered the gas pedal problem in the U.S. This statement was made despite records that showed it modified the same pedal to address the same problem in Europe the year earlier (Kanter, Maynard, and Tabuchi 2010).

Across these actions to address unintended acceleration and gas pedal problems, Toyota externalized the cost of defects in its cars by off-loading it to customers in terms of risk, injury, and personally funded repairs. It controlled the information flow about the problem in various countries until it was ‘outed.’ And, on several occasions, it appeared to deceive government regulators and the public. Why? Clearly, recalls are costly and potentially impact sales thereby deflating profit. This suggests that maintaining or increasing its profits outweighed concern for customers.

Pure speculation? Then consider the July 2009 presentation by Toyota staff to Yoshimi Inaba, then Executive Vice President, Member of the Board and Chief Officer of the North America Operations Group. The presentation was entitled, “Wins for Toyota -- Safety Group.” In the presentation, U.S. Toyota executive’s “boasted of saving hundreds of millions of dollars by getting the federal highway safety regulators to limit the scope of recalls” for floor mats in some Toyota and Lexus vehicles (Maynard 2010; CNBC 2010). The floor mats could cause unintended acceleration (Valdes-Dapena 2010). In Mr. Inaba’s 2010 testimony to the U.S. House Oversight and Government Reform Committee, he implicitly admitted that he was briefed on the Safety Group’s “successes” when he stated that he could not remember the meeting where he was briefed on the memo “with any depth” (Bensinger and Vartabedian 2010).

Other “wins for Toyota” lauded in the same presentation were a $124 million savings reaped by winning a phase-in to new safety regulations for side air bags and an $11 million savings reaped by delaying a rule for tougher door locks (Thomas 2010). Also credited as wins were: “Avoided investigation on ‘Tacoma rust’ and helping win delays in various new federal safety regulations” (Valdes-Dapena 2010).
In response to the facts of this presentation, a Toyota spokesperson said, “Our first priority is the safety of our customers and to conclude otherwise on the basis of one internal presentation is wrong. Our values have always been to put the customer first and ensure the highest levels of safety and quality" (Thomas 2010). The conflict between the facts of this internal presentation and the spokesperson’s assertions were not explained. No one asked how, given this unassailable ethic, such a presentation could be made to an executive officer and member of the board of Toyota (Yoshimi Inaba) without the least concern for reprimand for being unaligned with Toyota’s “first priority.”

Aberration or Clearer Image of the Toyota Motor Corporation?

To answer the question of whether the handling of the Hilux Surfs and 4Runners steering mechanism problems and the separate issue of unintended acceleration were aberrations, consider the findings of a deeper analysis of the Toyota Motor Corporation’s conduct during the period 1995– 2010 (see Exhibit A1, beginning on the page 6). This period offers an unusual window into Toyota’s actual executive practices. It was made possible because of a significant increase in investigative news coverage of the company. Also, the discovery processes of a number of lawsuits against Toyota became public and facts previously unrevealed were available for scrutiny. As a result, many revelations emerged about executive actions that hitherto had not been reported.

Both before and after this period, news coverage reverted to reporting traditional business performance information. Thus, we have no way to assess whether conduct similar to that reported in Exhibit A1 existed before 1995 or after 2010. Nonetheless, 15 years is a long period of performance. The factual occurrences revealed are many and the pattern of conduct in relation to customers, employees, and the community at large appears highly consistent yet thoroughly inconsistent with Toyota’s publicly asserted ethic.

Given its length of occurrence and the consistency of performance that significantly deviates from the declared values and practices of the company, it seems highly unlikely that this pattern of conduct emerged de novo in 1995. Indeed, all the major Toyota actors in this historical record had long and significant careers in the Toyota Motor Corporation prior to 1995.

Toyota's Executive Actions and Related Events 1995–2010

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Footnote

¹ Foundational knowledge refers to the set of concepts, principles, and relations used to explain the “why” underlying observed facts or precribed actions, or the set of assumptions from which the judgments and directives of a deductive knowledge systems are deduced.

Published June 12, 2019 - © 2019 Vital Enterprises - Austin, Texas. Revised 10/17/2021

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