Toyota recovery depends on getting back to proven principles, says MIT Sloan professor

New book by Michael Cusumano calls for “Staying Power” in challenging times

Michael CusumanoMichael A. Cusumano, Sloan Management Review Distinguished Professor of Management
Professor of Technological Innovation, Entrepreneurship, and Strategic Management and Engineering Systems

CAMBRIDGE, Mass., October 5, 2010 — Toyota is recovering from its brake pedal and other recent headline-making problems, but to avoid similar problems in the future, the legendary company must return to the basic principles that had made it so successful, according to MIT Sloan School of Management Professor Michael Cusumano, who has studied the best practices of Toyota and other leading companies for 30 years.

Cusumano’s new book, STAYING POWER: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World is being released on October 7 by Oxford University Press. “Toyota’s strength had always been its attention to detail and quality, but that focus got lost in the last ten years as the company began to emphasize volume in order to sell more vehicles than General Motors,” said Cusumano. “Toyota violated the basic principle that the pursuit of scale should never drive a company.” Cusumano appeared at a September 30 workshop held at MIT by a panel of Toyota executives and others created in response to the crisis faced by the firm in the last year. According to Cusumano, who has studied firms such as Toyota, Apple, Microsoft, Google and Intel, global competition, fast-changing technology, and other factors pose great challenges for managers.

“But it is possible to manage around the ups and downs all companies face,” he said.

His new book details six principles that “have enduring value for managers and should create staying power for the firm. The underlying ideas are not short-term management fads but have had a lasting and growing impact on management strategy and practice over the past several decades.”

Toyota, which had long adhered to the principles outlined in the book, began to get into trouble when it began to ignore some of them. Cusumano became personally aware of this slippage several years ago, when the company contacted him about possible rust problems in the Toyota Tacoma truck he owned. “It turned out there was corrosion of the Tacoma truck frame in North America going back at least a decade due to a lapse in quality with a supplier,” said Cusumano.

“Toyota should have issued a formal recall and contacted federal safety officials. Instead, Toyota quietly bought back the trucks from affected owners at 150 percent of their value. To me, that was absolutely a yellow flag, a warning that quality was dropping and that a lot of details were being allowed to slip.”

That corrosion problem and the more recent brake pad, floor mat and other problems violated another of Cusumano’s principles: Companies must maintain strong and direct ties to the market. “Toyota’s chief executive did not seem to be aware of what was going on,” said Cusumano. “In the past, Toyota’s senior executive team past would leave no detail untouched. They were on top of everything. But as it became larger and more global, Toyota changed.”

Cusumano said that he expected Toyota to rebound. “Most people never really lost faith in the company, except for that month when it seemed a new bit of bad news was coming out every day. Sales and profits have recovered quite quickly, from 2009, which was the first and only year Toyota lost money, to being profitable again now. And the company has gotten back to its quality basics: They are now recalling any vehicle with even hint of a problem.”

But to retain renewed market and consumer confidence, the company must remain “vigilant,” Cusumano said. “The greatest firms we have ever seen will all stumble at one point, some much worse than others. Staying Power is challenging and complicated, but as long as managers remain true to proven principles of success, they can successfully work through even difficult times.”

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