What is a four-letter word, beginning with “f”, spoken in anger? If you own a car being urgently recalled for the fifth time, you know the answer. Once such an unfortunate person has calmed down a little, their next words might be: “I should have bought a Toyota.” Toyota’s legendary and lasting quality stands behind such thoughts. The motto-length version of the company’s attitude declares: if you’re successful, change. You have to be permanently dissatisfied in order to get better. With 2004 profits of $11.1 billion, great success with its three brands (Toyota, Lexus and Scion), and being poised to overtake GM as the largest automaker on the planet over the next few years, in what direction will it drive itself to get better?

Year after year, Toyota pulls further ahead of its competitors in terms of quality, reliability, productivity, cost reduction, sales and market share growth, and market capitalization. The company carries with it an aura of invincibility. Commentators attribute its consistent excellence to the mysteries of Kaizen and the Toyota Production System (TPS). Developed and embedded in the corporate culture by Taichi Ohno and Shigeo Shingo from the 1950s to 1975, the TPS integrates elements of four practices: Jidoka (autonomation), or the shutting down of a process when something goes wrong); just-in-time production, in which material should be processed and moved in order to arrive “Just In Time” for the next operation; systems thinking; and kaizen (continuous improvement in a pervasive learning environment). Kaizen itself consists of five parts: Teamwork, personal discipline, improved morale, quality circles, and suggestions for improvement. (Some in-house suggestion schemes don’t elicit much input, but Toyota’s has generated 2 million-plus ideas.)

According to expert Steven Spear, four principles or lessons underlie the Toyota Production System: Lesson 1: “There’s no substitute for direct observation.” Lesson 2: “Proposed changes should always be structured as experiments.” Lesson 3: “Workers and managers should experiment as frequently as possible.” Lesson 4: “Managers should coach, not fix.” (“Learning to Lead at Toyota”) An essential part of the TPS mindset is a determination to uncover the root causes of a problem, not merely the symptoms – the scientific method applied at the most practical level. This approach has been applied even to areas such as workforce management. Toyota, together with Marriott International and FleetBoston Financial, developed analytical tools that use multivariate regression analysis to test hypotheses about root causes of workforce issues. (“How Fleet Bank Fought Employee Flight.”)

Another part of the Toyota formula is the relatively unusual way it develops and manages relationships with its suppliers. Whereas the Big Three North America auto companies seem to have antagonistic relationships supplier with their suppliers, Toyota’s approach allows it to rely on suppliers not just to reduce costs, but also to improve quality, and develop innovations. These unusual and mutually beneficial relationships, according to Thomas Choi and Jeffrey Liker in “Building Deep Supplier Relationships,” result from six steps: they understand how their suppliers work, turn supplier rivalry into opportunity, monitor vendors closely, develop those vendors’ capabilities, share information intensively but selectively, and help their vendors continually improve their processes. Nile Hatch and Jeffrey Dyer add that Toyota makes heavy use of knowledge-sharing networks with suppliers to produce higher worker productivity, lower inventory, and greater operational flexibility. The mechanisms are three interorganizational processes: supplier associations, consulting groups, and learning teams. (“Using Supplier Networks To Learn Faster.”)
 
Other car makers have been unable to match Toyota’s track record. Part of this may be due to the fact that the company actually practices what others preach, such as organizational flattening. Even in the 1970s, for instance, Toyota had only five layers of management between the chairman and a factory-floor supervisor, compared to more than 15 at Ford. Organizational culture is another essential factor in making the TPS almost copy-proof. This culture, known as “The Toyota Way”, is hard to reproduce, perhaps because it uniquely emerges from the company’s roots in a particular place, Toyota City. A core element of that winning culture seems to be the willingness of all workers to push themselves beyond where they feel comfortable—kaizen in action. (“The Car Company in Front.”)

Will Toyota’s sun keep rising as brightly in the future? Certainly, the company faces big challenges as it takes the top place in the industry. These include increasingly desperate competitors, organizational challenges that come with great size, and the need to bring in more global talent. (See “Mighty Toyota's Growing Pains.”) More than any other automaker, the company sees the future in hybrid gas/electric vehicles. Toyota is fully committed to this strategy, approaching it not by seeking huge technological leaps, but as a bridge to a more radical future. (Nicholas Carr argues for this consistency of strategy in “Bridging the Breakthrough Gap.”)

To other auto companies that keep losing out to Toyota, the perpetual winner might recite another Japanese proverb: “Fall down seven times, get up eight.”