TOYOTA:  THE  ULTIMATE  WAY  OF  MANAGING  INNOVATION    
AN  EXPLORATION  OF  THE  KEY  SUCCESS  FACTORS  OF  TOYOTA    
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
   
 TOYOTA:  THE  ULTIMATE  WAY  OF  MANAGING  INNOVATION  
 
 
INTRODUCTION      
 
Drucker  already  crowned  it  forty  years  ago  as  the  industries  of  industries,  and  he  seemed  to  
be  right.  Till  today,  the  automobile  industry  is  the  largest  manufacturing  activity  worldwide  
(Balakrishnan,   2003).   The   global   automobile   industry   is   characterized   by   a   set   of   large   global  
players,  whereby  Volkswagen  Group,  Ford  Motor  Company,  Toyota  Motor  Corporation  and  
General  Motors  Corporation  (GM)  are  forming  the  top  (Kett,  2009).    
 
78  years  in  a  row,  GM  dominated  the  no.  1  global  sales  position.  However,  in  2009  the  world  
turned  around  when  Japan’s  Toyota  Motor  Corporation  bumped  GM  from  there  seemingly  
solid   crown   when   it   became   clear   that   Toyota   sold   616.000   cars   and   trucks   more   than  
General   Motors   in   2008.   Where   GM   sold   8.355.947   vehicles   worldwide   in   2008,   Toyota  
announced   that   they   sold   8.972.000   cars   and   trucks   (The   Associated   Press,   2009).   Toyota  
just   became   the   world   leading   car   manufacturer,   leaving   GM   and   others   behind.   Toyota’s  
‘invasion’   of   the   no.1   global   sales   position   did   not   came   as   a   huge   surprise.   The   car  
manufacturer   almost   topped   GM   in   2007,   by   selling   solely   3.000   cars   and   trucks   less   than  
GM  did  in  2007  (The  Associated  Press,  2009).    
 
While  various  top  car  manufacturers  were  cutting  jobs  and  facing  significant  losses  in  2007,  
Toyota  was  investing,  hiring  people  and  making  profits  (Frahan,  2007).    
 
It  is  natural  to  think  that  the  secret  of  Toyota  lies  in  a  killer  model,  such  as  their  introduction  
of  the  Hybrid  car  in  1997  when  GM  and  others  were  just  conceptualizing  the  idea.  However,  
Toyota  proves  the  opposite,  as  their  success  does  not  lie  in  a  new  car  model,  but  in  a  new  
innovative  business  model,  their  process  and  people  management.  Toyota  is  not  profiled  as  
a   “Steve   Jobs   like”   innovative   guru,   Toyota’s   success   lies   in   their   process   rather   than   a   singly  
product,  i.e.  the  success  lies  on  the  factory  floor  rather  than  on  the  showroom.    
 
The   key   question   here   is:   how   does   an   organization   successfully   implement   approximately   a  
million   ideas   every   year   and   can   therefore   count   itself   to   the   top   10   profitable   companies  
worldwide?   How   could   a   company   like   Toyota,   who   successfully   wins   the   leadership   race,  
achieve  market  leadership  while  pursuing  perfection?    
 
This  paper  focuses  on  how  Toyota  was  able  to  bump  GM  of  the  no.  1  position  in  global  sales  
by   dealing   with   the   production   process   and   people   in   an   innovative   way.   This   paper   reviews  
the  historical  steps  Toyota  has  taken  which  resulted  in  market  leadership.      
 
In   this   paper,   the   success   factors   of   Toyota   will   be   discussed,   whereby   the   different  
innovation  concepts  applied  will  be  specifically  discriminated.    
Examining   the   success   of   Toyota,   makes   clear   that   Toyota’s   success   is   primarily   driven   by  
innovation   concepts   that   are   inherent   to   the   Toyota   Production   System   (TPS),   i.e.   lean  
manufacturing.  
 
Lean  manufacturing,  i.e.  TPS,  is  a  comprehensive  philosophy  with  two  important  innovation  
related   components   that   account   for   the   success   of   Toyota.   In   my   opinion,   the   success   of  
Toyota  is  due  to  lean  production  and  the  elements  that  are  inherent  to  this  philosophy,  i.e.  
Kaizen,  and  valuation  of  employees  as  main  assets  (Kotelnikov,  2010).    
 
Before   going   into   depth   in   the   lean   production   and   related   factors   that   account   for   the  
success  of  Toyota,  it  is  worthwhile  to  explore  the  impact  and  usefulness  of  lean  production  
itself.  After  doing  this,  Kaizen  en  Toyota’s  people  management  that  are  inherent  to  TPS  will  
be  explored  and  critically  discussed  by  use  of  the  innovation  concepts  applied.      
 
TOYOTA’S  LEAN  PRODUCTION  PROCESS    
 
While  top  car  manufacturers  like  Ford  and  GM  were  extensively  exploiting  mass  production  
and  economies  of  scale  during  the  30s  and  40s,  Toyota  seemed  to  face  business  conditions  
that  did  not  fit  similar  strategies.  Initially,  Toyota’s  market  was  considerably  smaller  than  the  
one  of  global  players  such  as  Ford  and  GM.  Toyota  faced  the  challenge  to  produce  a  variety  
of   car   models   on   the   same   assembly   line.   As   a   response,   in   1940,   Toyota   successfully  
overcame  this  boundary  by  cultivating  flexibility  in  the  production  system;  they  invented  the  
Toyota  Production  System,  i.e.  lean  production.  
 
Previous  to  the  success  of  lean  production,  craftsmanship  and  mass  production  formed  the  
status  quo.    
Craft   production   refers   to   manufacturing   by   hand   or   without   the   aid   of   tools   to   replicate.  
This   method   contains   a   severe   paradox,   which   can   be   accounted   to   the   uniqueness   of   the  
product.  On  the  one  hand,  people  tend  to  love  the  idea  of  craft  production  as  the  products  
consist   of   an   extremely   high   quality   and   are   unique   in   nature.   On   the   other   hand,   the  
uniqueness  can  be  disadvantageous  as  replacement  parts  had  to  be  highly  customized  to  fit  
a   specific   vehicle.   Furthermore,   the   cars   are   relatively   expensive   due   the   large   amount   of  
labor  hours  that  are  involved  in  their  production  (Balakrishnan,  2003).    
As   a   response,   mass   production   was   developed   which   changed   the   world.   By   use   of   mass  
production   the   prices   of   cars   considerably   dropped   and   due   to   standardization,   the   problem  
of   replacing   parts   vanished.   Even   though,   mass   production   made   cars   possible   for   a   wide  
range   of   people   with   different   incomes,   it   happened   at   expense   of   variety   (Balakrishnan,  
2003).    
Toyota’s  Production  System,  i.e.  their  lean  production  methods,  combines  the  advantages  of  
craft   and   mass   production   while   eliminating   the   disadvantages   of   these   methods   as   well.  
Lean   production   aims   to   offer   the   quality   of   craft   production   at   lower   prices   associated   with  
mass   production.   Furthermore,   it   offers   the   possibility   to   overcome   the   rigidity   of   mass  
production,  which  resulted  in  less  variety  (Balakrishnan,  2003).    
 
Today,   lean   production   as   innovative   production   method   is   adopted   by   a   variety   of  
successful   companies   all   around   the   world.   Lean   production   largely   abandoned   mass  
production   out   of   the   market.   In   this   sense,   lean   production   was   not   merely   a   way   of  
surviving  of  Toyota,  besides  that,  lean  production  changed  the  world  (Kotelnikov,  2010).    
 
At  the  heart  of  the  lean  production  philosophy  lays  eliminating  waste,  i.e.  zero  muda,  in  the  
form  of  time  and  material  in  every  step  of  the  production  process,  simplifying  processes  and  
hereby   speeding   up   the   production   process.   The   most   common   forms   of   waste   that   are  
eliminated  are:  overproduction,  inventory,   conveyance,  correction,  motion,  processing  and  
waiting.   Furthermore,   the   philosophy   is   based   on   components   such   as,   pulling   inventory  
based   on   customer   demand,   Kaizen,   and   valuation   of   humans   as   main   assets   (Kotelnikov,  
2010).    
 
Implementing   the   lean   production   process,   significantly   distinguished   Toyota   from   it’s  
competitors   as   lean   production   leads   to   reduced   costs,   improved   quality,   reduced   cycle  
time,  and  minimum  waste  and  environmental  pollution  (Graves,  2010).    
The  benefits  of  lean  production  are  best  understood  by  the  following  figure:    
 

 
                                                             Figure  1:  Benefits  lean  production            Source:  Kotelnikov  (2010)  
 
Even   though   the   success   of   lean   manufacturing   is   widely   acknowledged,   many   companies  
fail   to   adopt   lean   production.   Research   makes   clear   that   this   is   primarily   due   to   the   fact   that  
lean   manufacturing   is   more   than   a   departmental   solution,   it   is   a   management   philosophy  
that   should   be   implemented   corporate   wide   and   even   across   company   boundaries  
(Kotelnikov,  2010).    
 
In   this   context,   research   makes   clear   that   transforming   a   conventional   organization   into   a  
lean   enterprise   is   considerably   more   difficult   than   implementing   it   at   the   beginning   of   the  
enterprise  (Henderson  and  Larco,  1999).  From  this  can  be  inferred  that  the  big  strength  of  
Toyota  here  lies  in  the  fact  that  they  implemented  lean  manufacturing  at  the  start  of  their  
business.  
 
As   discussed   earlier,   in   my   opinion   the   success   of   Toyota   is   primarily   due   to   the   lean  
philosophy   and   the   innovative   concepts   that   are   inherent   to   it,   e.g.   continuous  
improvement,  and  valuation  of  humans  as  main  assets.    
 
KAIZEN:  CONTINUOUS  IMPROVEMENT  
 
The  Toyota  Production  System  uses  operational  excellence  as  a  strategic  weapon.  
To  successfully  eliminate  waste,  it  is  key  that  waste  is  defected  and  redundant  activities  are  
eliminated   as   soon   as   possible.   In   this   context,   Toyota   fosters   a   culture   of   continuous  
improvement  and  hereby  innovation  at  every  level  and  stage  of  the  production  process,  i.e.  
Kaizen   (Liker,   2004).   Any   management   activity   undertaken   should   somehow   lead   to  
increased   customer   satisfaction.   For   doing   this,   it   is   important   that   employees   and  
particularly   management   acknowledge   the   fact   that   every   corporation   has   problems.  
Accordingly,   it   is   key   that   a   culture   wherein   everyone   can   freely   state   problems   and  
suggestions  is  cultivated  (Kotelnikov,  2010).    
 
According   to   Frahan   (2007)   by   implementing   Kaizen,   you   do   not   only   outflank   your  
competition  in  the  next  quarter,  you  outflank  them  next  decade.  In  other  words,  it  seems  to  
be   the   case   that   Kaizen   contributes   to   the   development   of   a   sustained   competitive  
advantage  (Frahan,  2007).    
 
With  regards  to  Kaizen,  different  scholars  within  the  field  of  innovation  literature   state  that  
solely  focusing  energy  on  improving  the  current  processes  and  products  deviates  the  focus  
from  radical  innovation  (Kotelnikov,  2004).    
By   applying   Kaizen,   Toyota   pursues   sustainable   innovation   by   taking   small   steps,   i.e.  
incremental   changes.   Even   though   this   methods   sound   highly   incremental,   according   to  
Clark  and  Staunton  (1989)  such  developments  could  be  viewed  as  the  evolution  of  a  radical  
innovation.   Rothwell   and   Zegveld   (1985)   build   on   this   notion   by   stating   that   continuous  
success  depends  on  the  companies’  ability  to  continuously  improve  the  performance  of  their  
processes  and  products.    
 
Whereas   Clark   and   Staunton   and   Rothwell   and   Zegveld   (1985)   downgrade   the   argument  
with  regards  to  deviation  of  radical  innovation,  Conway  and  Steward  (2009)  reveal  another  
approach  to  the  novelty  of  products,  which  is  best  understood  by  figure  2:    

 
Figure  2:  Novelty  as  a  combination  of  user  benefit  and  embedded  characteristics    
(Conway  &  Steward,  2009)  
 
Above-­‐mentioned   figure   makes   clear   that   the   degree   of   novelty   is   primarily   dependent   on  
the   extent   of   benefits   that   the   consumer   perceives   of   the   new   product   and   the   extent   of  
new   or   improved   functionality   and/or   performance   (Conway   &   Steward,   2009).   Closer  
examination  of  previous  mentioned  parameters  makes  clear  that  continuous  improvement,  
by   learning   by   doing   and   customer   observation,   could   also   lead   to   radical   innovation.   In   this  
sense,   the   argument   that   Kaizen   deviates   employees   of   radical   innovation   is   negligible,   as  
above-­‐mentioned   exploration   makes   clear   that   it   is   dependent   on   how   the   radicalness   of  
innovation   is   measured.   Furthermore,   even   though   Kaizen   would   deviate   from   it,   prominent  
scholars   make   clear   that   sustained   competitive   advantage   through   innovation   seems   best  
served  by  incremental  innovation.    
 
Besides   above-­‐mentioned   discussion,   it   seems   to   be   quite   difficult   to   implement   Kaizen   in  
traditional   organizations,   as   it   demands   a   fundamental   cultural   change.   Accordingly,  
imposing  a  cultural  change  demands  significant  time  and  financial  efforts,  as  there  needs  to  
be   corporate   wide   support   for   the   cultural   and   management   change,   particularly   for  
switching   to   an   attitude   of   continuous   improvement,   Integrative   work   attitudes   and  
eliminating  departmental  walls  (Kotter,  2006).  Even  though  top  management  commitment  is  
highly  important,  it  is  quite  often  absent.  As  the  effect  of  a  cultural  change  like  these  solely  
will  become  visible  on  the  long  term,   the  cultural  change  demands  that  management  shift  
their   thinking   patterns   from   short   to   long   term.   As   this   switch   seems   quite   often   hard   to  
realize,  top  management  commitment  regularly  vanishes  away  (Kotter,  2006).    
In  this  context,  Kotelnikov  (2010)  stipulates  that  the  challenge  is  not  overcome  when  Kaizen  
is  successfully  implemented,  as  continuing  is  seems  to  be  even  harder.  For  doing  so,  long-­‐
term  commitment  of  top  management  is  key  (Kotelnikov,  2010).    
 
PEOPLE  MANAGEMENT    
 
While   GM   lay   off   34.000   jobs   between   2006   and   2008   and   was   planning   another   5.500  
layoffs,  Toyota  did  not  lay  off  any  job.  Even  though  Toyota  responded  to  the  slow  down  in  
auto  sales  by  halting  production  at  its  Texas  and  Indiana  plants  for  3  months,  they  did  not  
fire  anyone  (Spagnuolo,  2008).    
 
The   reason   for   Toyota’s   employee   friendly   approach   could   be   accounted   to   their   culture.  
Toyota  fosters  a  special  culture  with  deep-­‐rooted  values,  with  respect  for  their  employees.  It  
is  Toyota’s  tradition  to  not  fire  their  employees  during  hard  times,  as  employees  form  their  
greatest  investment  and  greatest  asset  (Spagnuolo,  2008).    
 
In   the   words   of   Latondra   Newton,   general   manager   at   Toyota:   ‘This   was   the   first   chance  
we’ve  really  had  to  live  out  our  values’  (Spagnuolo,  2008,  p.1).  He  proceeds  with:  “We’re  not  
just  keeping  people  on  the  payroll  because  we’re  nice.  At  the  end  of  all  this,  our  hope  is  that  
we’ll  end  up  with  a  more  skilled  North  American  workforce”  (Spagnuolo,  2008,  p.1).    
In   practical   terms,   this   means   that   while   these   employees   were   not   producing   cars,   they  
were  being  trained.    
 
At   the   end   of   rough   times,   Toyota’s   long-­‐term   vision   resulted   in   an   even   higher   skilled  
workforce,   but   moreover   happy   and   motivated   employees.   As   Toyota   was   willing   to   strive  
till   the   end   with   their   employees,   their   employees   are   willing   to   do   the   same   for   Toyota  
(Spagnuolo,  2008).    
Additionally   to   treating   your   employees   with   the   respect   they   deserve,   Toyota’s   people  
management   goes   even   further.   Besides   above   mentioned,   empowering   employees   lies   at  
the   heart   of   Toyota’s   people   management,   which   encourages   creativity,   continuous  
improvement  and  innovation.  Toyota  highly  acknowledged  the  fact  that  high  morale  and  job  
satisfaction  is  more  likely  to  produce  high  quality  products  at  reasonable  prices  (Spagnuolo,  
2008).    

Research  makes  clear  that  trust,  employee  participation,  space  for  innovative  behavior  and  
openness   are   key   for   fostering   a   creative   climate   and   hereby   innovation   (Tidd   &   Bessant,  
2010).   In   this   context,   Conway   and   Steward   (2009)   emphasize   the   importance   of   also  
viewing   innovation   as   an   emotional   process,   as   anxiety   can   significantly   block   creative  
behavior.    
 
Within  Toyota,  trust  is  not  merely  manifested  by  contracts,  but  moreover  by  goodwill  (Tidd  
&   Bessant,   2010).   Trust   seems   to   be   of   vital   importance   as   it   largely   helps   to   eliminate  
anxiety,  which  could  form  a  severe  barrier  for  creative  thinking  (Conway  &  Steward,  2009).  
The   remarkable   approach   that   Toyota   applied   during   low   sales   between   2006-­‐2008  
significantly   increased   the   amount   of   trust   of   employees,   as   Toyota   got   the   opportunity   and  
showed  willingness  to  really  live  out  their  values  (Spagnuolo,  2008).    
Employee  participation,  space  for  innovative  behavior  and  openness  is   primarily  manifested  
by   Toyota’s   corporate   culture   that   has   Kaizen   and   employee   empowerment   as   their   main  
fundaments.  By  promoting  continuous  improvement  and  moreover  presuming  imperfection  
of   processes   and   people,   Toyota   fostered   a   culture   wherein   employee   participation   and  
hereby  creativity  could  flourish.    
 
Even   though   every   company   would   like   to   foster   a   creative   climate,   it   seems   harder   than  
initially  thought.  Cultivating  trust  by  employees  asks  for  consistent  living  out  pre  set  values,  
even   during   financially   hard   times.   In   this   sense,   Toyota   had   the   courage   to   invest   50   million  
dollar  without  getting  anything  back  on  the  short  term  (Spagnuolo,  2008).  Besides  courage,  
Toyota  could  afford  doing  this  without  going  bankrupt,  not  every  company  could  afford  itself  
this  luxury.    
Furthermore,   while   various   companies   would   like   to   embrace   employee   participation,  
openness  and  space  for  innovative  behavior,  it  should  be  somehow  guided  to  come  to  the  
ideal   result.   Guiding   these   processes   asks   for   finding   the   right   balance,   wherein   faults   or  
inconsistency   could   be   detrimental   for   employees’   trust   (Tidd   &   Bessant,   2010).    
Additionally,  top  management  commitment  is  key  here.    
In  conclusion,  key  to  foster  a  creative  climate  is  consistency  and  continuity  of  pre  set  values,  
as  lack  of  these  could  have  detrimental  effects.    
   
CONCLUSION    
 
Above-­‐mentioned   discussion   does   not   solely   sketches   why   Toyota   is   so   successful,   but  
moreover   why,   despite   their   transparency   about   their   process   management,   companies  
cannot  easily  copy  their  success.    
 
As   GM   saw   Toyota   coming   up   fast,   GM   tried   to   gain   insight   into   the   success   of   Toyota   by  
means   of   formal   partnerships.   As   Toyota   is   famous   about   their   good   supplier   and  
partnerships   treatments   and   their   willingness   to   share   their   knowledge   with   other  
companies,   Toyota   shared   everything   they   knew   with   regards   to   making   cars   with   GM.  
Nevertheless,  GM  did  not  succeeded  in  staying  on  top  by  somehow  copying  the  successful  
elements  of  Toyota.    
 
Above-­‐mentioned   discussion   largely   explains   why,   as   it   seems   to   be   that   the   determining  
success  factors  of  Toyota  are  hard  to  copy.    
 
It  seems  to  be  the  case  that  companies  perceive  lean  production  as  a  departmental  solution,  
rather   than   a   philosophy   that   should   be   implemented   corporate   wide   and   even   across  
companies’   boundaries.   Furthermore,   research   makes   clear   that   transforming   a  
conventional  organization  into  a  lean  enterprise  is  considerably  harder  than   implementing   it  
in  the  beginning  of  the  enterprise.    
 
Kaizen   seems   hard   to   establish   within   traditional   organizations   as   it   asks   for   a   significant  
cultural  change.  As  the  effects  of  this  cultural  change  are  hard  to  capture  in  the  short  term,  
top  management  support  often  vanishes  away.    
 
Toyota’s  people  management  seems  to  form  fruitful  ground  for  a  creative  climate.  However,  
their   success   lies   in   consistently   living   out   pre   set   values.   Even   though,   various   companies  
would   like   to   embrace   employee   participation,   openness   and   space   for   innovative   behavior,  
it   should   be   carefully   guided   to   find   the   correct   balance.   As   this   sounds   easy,   significant  
mistakes  could  be  detrimental  for  employees’  trust  (Tidd  &  Bessant,  2010).    
 
Taking   everything   together,   it   seems   to   be   the   case   that   Toyota’s   success   is   historically  
build,  as  they  implemented  lean  production,  kaizen  and  their  people  management  from  the  
beginning  of  the  enterprise,  and  hereby  hard  to  copy.    
The   main   lesson   that   should   be   drawn   from   this   is   that   in   order   to   be   successful   in   the  
current   fast   changing   and   dynamic   industries   is   by   building   up   your   organization   in   a   way  
that   it   has   the   best   environmental   fit,   and   perhaps   moreover   presuming   imperfection   of  
processes   and   people   which   let   you   keep   a   foot   between   the   door   for   continuous  
improvement  and  hereby  innovation.    
 
 
   
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