Japanese automaker Toyota Motor Corp. has long been known for its lean production system, a protocol replicated by its competitors as well as by manufacturers in other industries. Toyota also became famous for its effective supply chain, streamlining it to focus on strong relationships and the pursuit of quality—another practice emulated by competitors.

But somewhere on the road to worldwide industry dominance, Toyota evidently took its eye off the goal. Its world began to unravel in 2010 with the widespread news of problems in Toyota and Lexus models. Before long, the company was forced to issue a series of product recalls involving as many as 8 million cars sold since 2000. At least 34 deaths and numerous injuries from Toyotas that accelerated out of control without warning were reported.

As consumer fears deepened, the U.S. Congress launched an investigation of Toyota vehicles and called on company executives to come forward and explain how the automaker was addressing the problems. What eventually was revealed was nearly as shocking as the many deaths and injuries resulting from the accidents: Toyota’s American executives wielded little or no authority over the company’s operations. Because of this insufficient authority, the American executives were unable to issue a safety recall even when confronted with evidence of a serious problem. Precious time elapsed while word of a possible design defect made its way from the United States to Japan, and a Japanese executive finally gave approval for a recall.

Known for its attention to detail and a passion for perfection, how could Toyota have gone so far astray? Industry insiders say that in its quest to fulfill the 1998 directive of its former chairman to double global market share by 2010, Toyota lost sight of its fundamental values.

Going forward, some industry observers suggested that Toyota must delegate authority to non-Japanese leaders and trust them to use their knowledge and experience to act wisely. In addition, Toyota must decentralize its decision-making function. In response, Toyota instituted a number of changes to its structure. First, the company reassigned 100 engineers to quality control. Toyota also extended the time required to develop new vehicles in an effort to identify flaws prior to manufacturing. Finally, Toyota increased the number of American engineers and gave U.S. manufacturing facilities more control and authority.

Toyota is beginning to see the effects of these changes. The company has retained its title of largest automobile manufacturer in the world, and management expects profits to double over the next year. Time will tell whether these changes produce temporary or more sustainable positive effects for Toyota.¹