How Toyota Ran Off the Road--and How It Can Get Back on Track
By H. Thomas Johnson
Toyota's current quality crisis is not a sign that its longstanding reputation for excellence was a mirage, that its fundamental management system was never really superior to the systems in competing organizations. Rather, it reflects disastrous policies adopted after 2000, when top management's thinking changed 
sharply in a direction that, while consistent with that of most other Western companies, would never have been tolerated at Toyota in the past.
In a bid to surpass General Motors as the world's largest automaker, after 2000, Toyota's top managers became ensnared in a destructive mode of thinking--thinking that focused their decisions and actions on achieving immediate financial targets, no matter the long-run consequences to the company's welfare. Popularly known as "management by results," or MBR, this approach dominated American businesses after 1970 and remains the prevailing business philosophy today.
Before 2000, however, Toyota followed an alternative mode of operating that I refer to as "management by means," or MBM. A company employing MBM succeeds by building and continuously improving the system of relationships among customers, managers, workers, suppliers, owners, and the larger community. The system's purpose is to enhance human well-being by providing safe and useful products and services, meaningful livelihoods, and sustainable financial returns.
One of the first things I learned when I began observing Toyota's operations almost 20 years ago was that accounting-based financial tools, such as cost targets, standard cost variances, performance budgets, and compensation incentives, are not needed in a Toyota plant. Indeed, the company's legendary industrial engineering genius, Taiichi Ohno, reportedly said that he was able to achieve the changes in plant operations that led to what became known as the Toyota Production System because "my boss, Mr. Toyoda, kept the accountants off my back."
While creating and refining its unique MBM management system from the 1950s through the 1990s, Toyota rose to become the most successful and trusted manufacturer in the world. So it was surprising that the company embarked on a "management by results" strategy after 2000. With financial executives gaining control of top leadership positions, Toyota's management grew less attuned to operations than to the demand for steady growth in shareholder wealth and share prices. The current engineering and design failures that have caused unprecedented recalls are classic symptoms of pushing to achieve short-run financial and growth targets beyond the company's current capacity to integrate new plants, new suppliers, new workers, and especially new managers into a coherent whole.
Can Toyota regain the reputation for excellence that it enjoyed until recently? It depends on top management's commitment to restoring and nurturing the disciplined pattern of continuous improvement in operations that originated with the company's founders. Toyota's new CEO Akio Toyoda would be well advised to reflect on how the current MBR thinking espoused by the architects of Toyota's disastrous growth policy of the past decade differs from the MBM thinking that led to its previous record of sustained success.
H.Thomas Johnson is professor of business at Portland State University and Distinguished Consulting Professor of Sustainable Business at Bainbridge Graduate Institute. In 1997, Harvard Business Review named his book Relevance Lost one of the most influential management books of the 20th century, and in 2003, Harvard Business School Press listed Tom among today's 200 leading management thinkers. In 2001, Tom's book Profit Beyond Measure received the Shingo Prize for Excellence in Manufacturing Research, and in 2007, the American Society for Quality awarded him its prestigious Deming Medal.
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