The Toyota Automotive Company

His “mistake-proof” loom became Toyoda’s most popular model, and in 1929 he sent his son, Kiichiro, to England to negotiate the sale of the patent rights to Platt Brothers, the premier maker of spinning and weaving equipment. His son negotiated a price of 100,000 English pounds, and in 1930 he used that capital to start building the Toyota Motor Corporation (Fujimoto, 1999).

It is perhaps ironic that the founder of Toyota Motor Company, Kiichiro Toyoda, was a frail and sickly boy, who many felt did not have the physical capacity to become a leader. But his father disagreed and Kiichiro Toyoda persevered. When Sakichi Toyoda tasked his son with building the car business, it was not to increase the family fortune. He could just as well have handed over to him the family loom business. Sakichi Toyoda was undoubtedly aware that the world was changing and power looms would become yesterday’s technology while automobiles were tomorrow’s technology. But more than this, he had put his mark on the industrial world through loom making and wanted his son to have his opportunity to contribute to the world. He explained to Kiichiro:

Everyone should tackle some great project at least once in their life. I devoted most of my life to inventing new kinds of looms. Now it is your turn. You should make an effort to complete something that will benefit society. (Reingold, 1999)

Kiichiro’s father sent him to the prestigious Tokyo Imperial University to study mechanical engineering; he focused on engine technology. He was able to draw on the wealth of knowledge within Toyoda Automatic Loom Works on casting and machining metal parts. Despite his formal engineering education, he followed in his father’s footsteps of learning by doing. Shoichiro Toyoda, his son, described Kiichiro Toyoda as a “genuine engineer” who:

… gave genuine thought to an issue rather than rely on intuition. He always liked to accumulate facts. Before he made the decision to make an automobile engine he made a small engine. The cylinder block was the most difficult thing to cast, so he gained a lot of experience in that area and, based on the confidence he then had, he went ahead. (Reingold, 1999)

His approach to learning and creating mirrored that of his father. After World War II, Kiichiro Toyoda wrote, “I would have grave reservations about our ability to rebuild Japan’s industry if our engineers were the type who could sit down to take their meals without ever having to wash their hands.”

He built Toyota Automotive Company on his father’s philosophy and management approach, but added his own innovations. For example, while Sakichi Toyoda was the father of what would become the jidoka pillar of the Toyota Production System, Just-In-Time was Kiichiro Toyoda’s contribution. His ideas were influenced by a study trip to Ford’s plants in Michigan to see the automobile industry as well as seeing the U.S. supermarket system of replacing products on the shelves just in time as customers purchased them. As discussed in Build a Culture of Stopping to Fix Problems, to Get Quality Right the First Time, his vision was at the root of the kanban system, which is modeled after the supermarket system. Notwithstanding these achievements, it was his actions as a leader, like his father, that left the largest imprint on Toyota.

Along the way to building a car company World War II happened, Japan lost, and the American victors could have halted car production. Kiichiro Toyoda was very concerned that the post-war occupation would shut down his company. On the contrary, the Americans realized the need for trucks in order to rebuild Japan and even helped Toyota to start building trucks again.

As the economy revitalized under the occupation, Toyota had little difficulty getting orders for automobiles, but rampant inflation made money worthless and getting paid by customers was very difficult. Cash flow became so horrendous that at one point in 1948 Toyota’s debt was eight times its total capital value (Reingold, 1999). To avoid bankruptcy, Toyota adopted strict cost-cutting policies, including voluntary pay cuts by managers and a 10 percent cut in pay for all employees. This was part of a negotiation with employees in lieu of layoffs, to maintain Kiichiro Toyoda’s policy against firing employees. Finally, even the pay cuts were not enough. This forced him to ask for 1,600 workers to “retire” voluntarily. This led to work stoppages and public demonstrations by workers, which at the time were becoming commonplace across Japan.

Companies go out of business every day. The usual story we hear these days is of the CEO hanging on and fighting to salvage his or her sweetheart option packages or perhaps selling off the company to be broken up for any valuable assets. It is always some other person’s fault that the company has failed. Kiichiro Toyoda took a different approach. He accepted responsibility for the failing of the automobile company and resigned as president, even though in reality the problems were well beyond his or anyone else’s control. His personal sacrifice helped to quell worker dissatisfaction. More workers voluntarily left the company and labor peace was restored. However, his tremendous personal sacrifice had a more profound impact on the history of Toyota. Everyone in Toyota knew what he did and why. The philosophy of Toyota to this day is to think beyond individual concerns to the long-term good of the company, as well as to take responsibility for problems. Kiichiro Toyoda was leading by example in a way that is unfathomable to most of us.

Toyoda family members grew up with similar philosophies. They all learned to get their hands dirty, learned the spirit of innovation, and understood the values of the company in contributing to society. Moreover, they all had the vision of creating a special company with a long-term future. After Kiichiro Toyoda, one of the Toyoda family leaders who shaped the company was Eiji Toyoda, the nephew of Sakichi and younger cousin of Kiichiro. Eiji Toyoda also studied mechanical engineering, entering Tokyo Imperial University in 1933. When he graduated, his cousin Kiichiro gave him the assignment of setting up, all by himself, a research lab in a “car hotel” in Shibaura (Toyoda, 1987).

By “car hotel,” Kiichiro was referring to the equivalent of a large parking garage. These were jointly owned by Toyota and other firms, and were necessary to encourage car ownership among the small number of wealthy individuals who could afford cars. Eiji Toyoda started by cleaning a room in one corner of the building himself and getting some basic furniture and drafting boards. He worked alone for a while and it took one year to finally build a group of about 10 people. His first task was to research machine tools, which he knew nothing about. He also checked defective cars, as one role of the car hotel was to service Toyota products. In his spare time, he would check out companies that could make auto parts for Toyota. He also had to find reliable parts suppliers in the Tokyo area in time for the completion of a Toyota plant.

So Eiji Toyoda, like his cousin and uncle, grew up believing that the only way to get things done was to do it yourself and get your hands dirty. When a challenge arose, the answer was to try things—to learn by doing. With this system of beliefs and values, it would be unimaginable to hand over the company to a son, cousin, or nephew who did not get his hands dirty and truly love the automobile business. The company values shaped the development and selection of each generation of leaders.

Eventually Eiji Toyoda became the president and then chairman of Toyota Motor Manufacturing. He helped lead and then presided over the company during its most vital years of growth after the war and through its growth into a global powerhouse. Eiji Toyoda played a key role in selecting and empowering the leaders who shaped sales, manufacturing, and product development, and, most importantly, the Toyota Production System.

Now the Toyota Way has been spread beyond the leaders in Japan to Toyota associates around the world. But since today’s leaders did not go through the growing pains of starting a company from scratch, Toyota is always thinking about how to teach and reinforce the value system that drove the company founders to get their hands dirty, to truly innovate and think deeply about problems based on actual facts. This is the legacy of the Toyoda family.