Goal Delusion At Toyota: A Case Of Hubris


Toyota fascinates me.  As a global icon only Tiger Woods has fallen further and faster.  How did this happen to a brand that a year ago was characterized by its quality and durability?

I’m sure there is no one answer, but Akio Toyoda, the CEO, revealed some of the problems in October 2009 when he stated: “We are grasping for salvation, … the company already has spiraled through: hubris born of success, undisciplined pursuit of more and denial of risk and peril.”

The Toyota recalls were the result of the goal Toyota set early in this century to become the world’s #1 in car sales.  It decided to take on the wounded GM and move its global market share from about 11% to 15%.  It achieved this and more, but now is struggling to maintain its starting position.

Toyota followed all the management rules.  It was a case study on goal setting, measurement, and execution – and it failed.  It will cost Toyota $2 billion in repairs and lost sales for its hubris.  So what went wrong?

Toyota was measuring the wrong thing! Its aggressive market goal was not based in the needs of car buyers.

Toyota believed that its legacy of innovation and high quality, durable products would carry it to its goal of world #1.  It forgot its customers and embraced its supply chain.  As it got beyond its tier one suppliers it no longer had deep relationships that could ensure quality.  Eventually the complexity of the over reach imploded into Toyota’s recall crisis.

The question behind Toyota’s goal should have been: “How much market share can we gain annually and still maintain the high quality and durable products that our customers expect from us?

Goal Confusion

I see this goal confusion all the time in my consulting work.  Business plans are set with goals and metrics that have no relationship to the customer.  In fact, the customer is rarely part of the discussion.

Like most business managers I have had to deal with goal setting in my career.  When I was a consulting Partner I took over a small change consulting group.  It was not well connected to the market and its services were not sharply aligned with what customers needed at that time.  Growth was simply a matter of getting out, talking to people, and generating interest in what we could do.

During my first full year of leading the group our revenues went up about 30% without adding to the cost structure.  The next year we hit more than 20%.  Sure that was a decrease; however, most other practices were only hitting growth numbers in the high single digits.  In the third year I was asked to do 19% while the rest of the firm was aimed around 8%.  I said that my team couldn’t do it because we’d become mature in a softening market.  Eventually the partnership relented and set my goal as 12%.  It was a disastrous year all around.  My team did about 7% – even lower than what I thought the market could produce – but higher than the overall firm performance.

When I think back on that third year I think about the way we treated our clients.  Solving their problems was not our concern.  Solving our problems was.  Every business decision was made to favor the firm, not the customer.  We over scoped projects, under staffed them, demanded up-front payments, and chased receivables with a vengeance.  We probably made marginally more money that year because of our tactics, but no one ever quantified the cost to our client relationships.

And these stories don’t go away.  Just recently I was speaking with a Customer Service VP in a major, global electronics company.  They were describing to me how the current cost cutting mentality is hurting customers.  In the name of profits driven by efficiency the company is eliminating customer facing jobs and centralizing the supply of repair parts into the logistics function where the primary concern is provisioning parts for product manufacturing – not customer service.  This internally focused initiative can only lead to disaster.

Finally, I was having lunch with a vice president of a health insurance company.  They told me what they’ve been doing to “save” the company.  Several years ago the company got into financial re-statement problems that devastated its reputation; and its products have always been sub-standard.  A business Darwinian would have let the company pass into history; however, survival is a primary instinct – particularly in business.  The rescue strategy has been to substantially withdraw from the insurance business, meaning that the employee level could be cut in half; and essentially become a distribution company by using free agent brokers for its products and those of its competitors.  How long will this model last before the abused customers abandon ship?

We Just Don’t Get It

If we’re going to learn from Toyota then it looks like it will be the hard way.  Our executives are still in a cost control mentality.  Unfortunately, survival is being built on the backs of customers.  This conflicts with the lesson of the financial collapse that shows customers are angry; they feel abused by: financial institutions, the housing industry, and now trusted name brands.

Customers don’t want to do business with companies that just get over the bar.  They want to do business with companies that show: moral leadership, social responsibility, and respect for their employees.  We are not meeting this customer expectation, and part of the reason is that we’re still setting business goals without regard to our customers.

I believe in goals and monitoring their achievement to know where you are.  But we have to know how to set goals and then know what to do with them.  All too often our goals are an incomplete reflection of the values that should be leading our business.  Too often our goals are built on what we value – that is, making “profit”.  This causes us to forget about doing things right for those we serve, and we focus on the goal of making money.   I know i will be chatised, however, contrary to popular belief the business of business isn’t “to make money”.  The business of business is to serve customers.  Making money is difficult without them.

I recently watched Camilo Villegas win a golf tournament.  Several times during the telecast the broadcasters mentioned that he was playing better because he learned to focus on the process, not the result.  Well I could hear howls from “results oriented” managers who would say that results are all that matters – activity does not equal results!  I beg to differ.  Focusing on the right activities still produces the right results in the right way.

Managing is as difficult as playing golf.  I suspect that Camilo didn’t tee it up on Sunday saying that he had to shoot 68 to win.  I think his goal was to put the best swing he could on every shot, accept the result, adjust and play on.

Toyota’s goal forced it to take its eye off the customer. The cost?  MasterCard.  Priceless!


Source by Bud Taylor