Toyota’s Huge Profits and a "Dark Side?"


Detroit News: Toyota posts $14B profit

Catching up on the news from last week.

“We believe our continuous efforts have steadily contributed to our record net revenues, operating income and net income,” said Toyota President Katsuaki Watanabe.

The quote about “continuous efforts” is the closest thing to any mention of the Toyota Production System in the article.

Toyota earns much of its income in the United States, where it has a younger work force and lower expenses than U.S. automakers saddled with the legacy costs of an old industry and aging work forces.

In cost comparisons with Japanese automakers, “the Americans are out of whack by anywhere between $1,000 and $4,000 per car,” Hossack said.

The weak yen, legacy costs, those are all true. But those aren't the only reasons that Toyota is continuing to do so well. I wish every article about Toyota's success (becoming #1 in sales, huge profits, etc.) would have at least a cursory one-sentence description of TPS and Lean. I know space is limited, but if they can ALWAYS mention the legacy healthcare and pension costs (which GM management voluntarily signed up for, something that's hardly ever mentioned), why can't they always mention Lean as the basis for Toyota's competitive advantage?

Focusing on the Success of TPS

This Korean article (English translation) does discuss TPS, both in context of Toyota AND the spread to the Japanese public sector.

The biggest reason for Toyota's strength, experts say, is the Toyota Production System (TPS), which maximizes efficiency.

With Toyota's impressive success, its management style has rapidly spread not only to enterprises but also to the public sector.

The Japanese government recently appointed former Toyota Italy chairman Kitamura Norio as the first chairman of a postal company to be launched in October 2007 as the result of the Koizumi Junichiro administration's effort to privatize the state-run Japan Post.

I'll try to do a little more research into their Lean efforts at Japan Post. There's already been very good lean work done in the Canadian postal service (post at the Gemba Pantarei blog).

What's This About a “Dark Side?”

Now if you were tempted to stop reading the Korean article after the positive side, you'd miss the interesting stuff. It's not often you see negative things written about Toyota. Sure, you might see articles about quality problems and other challenges during their growth and expansion. This article delves into a “dark side of Toyota.”

About one third of its production workers are irregular ones; for many of its subcontractors, around a half of their employees are low-wage immigrant workers.

I knew Toyota used contract/temp workers (they just announced the plan to release some in Indiana, as we reported last week), but one third of their Japanese workforce are subcontractors? Does this include suppliers or Toyota itself? It's not clear the way it's worded in the article.

The article talks about complaints that employees are not getting pay raises, even given the huge profits.

In this year's spring negotiations, held as the Japanese government encouraged a wage increase in an endeavor to promote consumption, the Toyota labor union made a relatively modest request of raising basic wages by 1,500 yen (around 12,000 won).

Concerns were prevalent, however, among the company's top management that if they “keep increasing wages this way, [Toyota] will face the same problems as GM in 10-20 years.”

Consequently, the labor union made a compromise, and the two sides agreed on a 1,000-yen increase as in the previous year.

The article also explores the previously reported fears of Toyota getting too arrogant from its success and #1 status:

As Japanese society highly praises Toyota nowadays, some members of the company have become wary. “In 1952, when GM was enjoying its heyday, its downward spiral began when its president Charles Irwin Wilson was nominated as defense secretary.”

Japanese society is also making endeavors to prevent the carmaker from indulging in self-complacence. In its latest edition, the economic weekly Nikkei Business published an interview with Toyota President Watanabe to deliver messages from various sectors of society criticizing the company's signs of “large-business syndrome.”

I guess the first step in avoiding the downfalls of arrogance is to be aware that you're there, or that you run the risk of getting there. An interesting leadership/management challenge for Toyota's leadership.

I don't mind shedding light on people's criticism of Toyota. I think the worst thing us Lean consultants can do is create this perception that Toyota is somehow perfect or infallible. That sets the bar WAY too high and sets us all up for a stumble when Toyota stumbles.

So, today we've seen positive and negative press on Toyota. Again, they're not perfect, that's OK. They're a company with people with human failings, just like your company. You're not chasing after some idealistic perfection company, in Toyota, you're chasing a company that's chasing perfection with zeal.

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Mark Graban
Mark Graban is an internationally-recognized consultant, author, and professional speaker, and podcaster with experience in healthcare, manufacturing, and startups. Mark's new book is The Mistakes That Make Us: Cultivating a Culture of Learning and Innovation. He is also the author of Measures of Success: React Less, Lead Better, Improve More, the Shingo Award-winning books Lean Hospitals and Healthcare Kaizen, and the anthology Practicing Lean. Mark is also a Senior Advisor to the technology company KaiNexus.


  1. My understanding is Toyota has said they are hiring more full time employees in Japan (which will reduce the % of temp workers) – though I could well be wrong on that.

    Also I can’t seem to find it now but several months ago (I think) the pay for Toyota workers in Japan was discussed. I found it odd that Toyota held the salary raises so low but the bonus amounts increased a great deal (totally something like $20,000 per worker if I remember right).


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