Question: In 2005, The Economist noted the increasing dominance of Toyota in automotive manufacturing, commenting that "[t]here is the world car industry, and then there is Toyota." For fiscal year 2009, Toyota produced slightly over 7 million vehicles, with approximately 40 percent of those being produced outside of Japan. In that same period, Toyota sold almost 7.6 million vehicles, and 74.3 percent of the sales were overseas. As of June 2009, Toyota employed over 320,000 people throughout its globally dispersed parts manufacturing, vehicle assembly, and marketing operations.

Toyota's strong corporate culture is the "glue" that holds these far-flung operations together and makes them part of a single entity. "Spend some time with Toyota people and ¼ you realize there is something different about them. The rest of the car industry raves about engines, gearboxes, acceleration, fuel economy, handling, ride quality and sexy design. Toyota's people talk about The Toyota Way [italics added] and about customers." Toyota's customer focus is legendary. Says one Toyota executive, "[t]he Toyota culture is inside all of us. Toyota is a customer's company. ¼ Everything is done to make ¼ [the customer's] life better."

The Toyota Way, the defining element of Toyota's corporate culture, is embodied in the following fourteen principles:

"Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals."

"Create a continuous process flow to bring problems to the surface."

"Use ‘pull' systems to avoid overproduction."

"Level out the workload (heijunka). (Work like the tortoise, not the hare.)"

"Build a culture of stopping to fix problems, to get quality right the first time."

"Standardized tasks and processes are the foundation for continuous improvement and employee empowerment."

"Use visual control so no problems are hidden."

"Use only reliable, thoroughly tested technology that serves your people and processes."

"Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others."

"Develop exceptional people and teams who follow your company's philosophy."

"Respect your extended network of partners and suppliers by challenging them and helping them improve."

"Go and see for yourself to thoroughly understand the situation (genchi genbutsu)."

"Make decisions slowly by consensus, thoroughly considering all options; implement decisions rapidly (nemawashi)."

"Become a learning organization through relentless reflection (hansei) and continuous improvement (kaizen)."

The Toyota Production System (TPS), which puts The Toyota Way into practice, focuses on "making cars, making cars better, and teaching everyone how to make cars better. At its Olympian best, Toyota adds one more level: [i]t is always looking to improve the process by which it improves all the other processes."

Toyota's culture has served the company very well for many years. Indeed, competitors marvel at Toyota's culture and its ongoing success. As one General Motors' planner observed privately, "the only way to stop Toyota would be the business equivalent of germ warfare, finding a ‘poison pill' or ‘social virus' that could be infiltrated into the company to destroy its culture."

Over the years, "Toyota has adapted well to changes facing the automotive industry by establishing sound processes and procedures. It has made continuous change and improvement the essence of its business philosophy: each year thousands of improvements are suggested by employees and many are implemented. ¼ It has built its success with products that are made according to the all-embracing Toyota Way [italics added]. In fact, so confident is Toyota of its quality and reliability record, that it allows rival companies to visit its factories all over the world."

In recent years, however, some cracks seem to be developing in the armor of Toyota's vaunted culture. An internal Toyota study compared the company's products against its competitors' products-component by component, car by car-and found Toyota's products to be superior in just over half of the hundreds of components and vehicle systems. Toyota judged such quality performance to be unacceptably mediocre. In reference to the U.S. market, some business analysts say that Toyota's rapid growth is one cause of the company's growing quality-control problems. Charles Fishman, writing in Fast Company, says, "Toyota is far from infallible ¼ recalls for quality and safety problems have spiked dramatically [and are] evidence of the strain that rapid growth puts on even the best systems. But those quality issues have seized the attention of Toyota's senior management. In the larger arena, when the strategy isn't to build cars but to build cars better, you create perpetual competitive advantage."

Toyota has long desired to become the Number One Car Company in the world. However, the pursuit of this ambitious goal has strained Toyota's fabled production system as "a series of un-Toyota-like quality problems have begun to nibble away at the firm's reputation as the world's most admired manufacturer and as a byword for reliable vehicles."

Given that Toyota makes nearly as many vehicles outside Japan as it does at home, the company has been challenged in effectively inculcating The Toyota Way into its foreign manufacturing operations. This has contributed to the quality problems that Toyota has experienced in its foreign operations. Katsuaki Watanabe, Toyota's CEO, "thinks Toyota is losing its competitive edge as it expands around the world." He frets that quality, the foundation of its U.S. success, is slipping. He grouses that Toyota's factories and engineering practices aren't efficient enough.

Will The Toyota Way enable this company to solve it quality problems-or will Toyota need to part from its Way?

This case was written by Michael K. McCuddy, The Louis S. and Mary L. Morgal Chair of Christian Business Ethics and Professor of Management, College of Business Administration, Valparaiso University.

Case Study Questions: Answer the following questions

1. Describe Toyota's culture from the perspective of espoused values and enacted values.

2. Using the perspective of the functions of organizational culture, explain the impact of The Toyota Way.

3. Using the perspective of the effects of organizational culture, explain the impact of The Toyota Way.

4. What challenges does Toyota face as it attempts to maintain The Toyota Way while pursuing vigorous global expansion?