2009 University of Denver, Daniels College of Business MBA Candidates

March 30, 2009
Jim Lentz
President, Toyota Motor Sales USA
Global Managing Officer, Toyota Motor Corporation
University of Denver, Daniels College of Business MBA Candidates
Gates Concert Hall, Denver, Colorado
March 30, 2009
 
Thank you, Sam, and good evening everyone!
 
It’s great to be back at DU and a thrill to be with you...the next generation of business leaders in the global economy, along with your mentors and members of the community here tonight.
 
Some of my best memories happened on this campus. Like playing pick-up hockey games… developing great friends for life...and going to parties…which (draw out)...I’m not really going to talk about this evening...
 
I can tell you that my wife, Barb, who’s with me tonight and has been my life partner, also graduated from DU...and we’re both extremely proud to be associated with one of this country’s leading universities.
 
A lot has changed since we graduated, but DU’s commitment to the public good...improving the human condition...and taking on “the great issues of the day” is stronger than ever.
 
I’ve had a chance to look around today and see some of the programs DU is offering. They are truly making a difference...not only in the Rocky Mountain Region...but throughout the world.
 
That’s not only vital to YOUR future, but to the future of our civilization.
 
So...at the top tonight...I want to offer my hearty congratulations to Chancellor Bob Coombe, his leadership team and all the staff for transforming DU into a world-class institution of higher learning ...and higher doing...a university that WILL MATTER in the 21st Century.
 
Congratulations!
 
You know, being a part of Toyota for three decades and now as president, I get asked the darndest things:
  • When is Toyota coming out with a decent sports car?...
  • Can you get me a deal on a Prius? ...
  • Do I eat sushi? ...and so on...
But...surprisingly...the one I get asked more often than not is...“What’s the secret to Toyota’s success?”
 
People want to know how Toyota went from being a question mark in the 1950s to a business benchmark...that even today in the throes of a deep recession...is the 3rd most admired company on the planet next to Berkshire Hathaway and Apple.
 
So, I’m going to answer that question for you tonight...AND...the answer may surprise you.
 
It’s not our factories...or our great associates and dealers...or our hybrids...or Lexus...or our high quality ratings...although all those play a key part in our success.
 
No...the true roots of Toyota’s success lie in our basic philosophy…a set of values, beliefs and business practices we developed over the years called “The Toyota Way”.
 
This is not a top-down set of instructions…or a manual of behavior instituted by management. It grew among the hundreds of thousands of Toyota workers and was passed along from generation to generation mostly by example and word of mouth.
 
Now, I hear some of you saying...”How can a simple philosophy POSSIBLY be the source of Toyota’s competitive strength?
 
Well...tonight...I will share a few key tenets and stories of The Toyota Way so you can see the power they bring to our organization...and the results they deliver.
 
So, let me start at the beginning...
 
I personally got a big dose of The Toyota Way from one of its top leaders in 1982, just a few days after I joined the company.
 
One key tenet of The Toyota Way is called genchi genbutsu...which...translated from Japanese...means “go and see.”
 
As the new, rookie distribution manager in our Portland regional office, I had a habit of getting into the office early in the morning before anyone else arrived.
 
One morning, I heard a knock on the door and saw a Japanese couple standing out front. I opened the door, and it turned out to be Isao Makino, president of my company, and his wife, Ryoko.
 
He wanted a car and a map so he could go visit dealers to find out what was going on with customers.
 
So, I gave him a Toyota Cressida and a map, and he spent a week visiting with dealers.
 
He wanted to “go and see” dealers to ask them about their needs so he could help improve operations.
 
No fanfare...no entourage…no warning...just plain talk with our dealers at a crucial customer touch-point.
 
That’s when it hit me that Toyota was a VERY different kind of company.
 
Mr. Makino was demonstrating The Toyota Way in action…and it made a huge, positive impression on me.
 
In fact, The Toyota Way...which in essence is our ethics and core values... has been my North Star as I’ve moved up the ladder at Toyota...and it still guides me today as I make major decisions on a regular basis.
 
In other words, I’ve found...that in business...doing good for the soul is not only good for the soul...it’s good for the bottom line, too.
 
Now....to help you can better understand the ways and development of The Toyota Way...let me give you a brief sketch of Toyota’s history.
 
Since Toyota has made tremendous strides in its 76 years, a lot of people think we’ve always been a highly successful company.
 
But...actually...the company comes from humble beginnings and has gone through its share of rough times.
 
It may surprise you to know that Toyota didn’t start out as car company, but rather a textile loom company.
 
In 1924, after watching his mother’s frustration with broken threads while weaving fabric, our founder, Sakichi Toyoda, created a revolutionary automatic loom that shut down if it detected a broken thread...saving time and materials and improving quality.
 
Later, Sakichi sold the patent for the loom and gave the proceeds to his son, Kiichiro, to start a car company.
 
The year was 1937...and that company went on to become Toyota Motor Corporation.
 
But Sakichi passed on a lot more than just the funds to start an automotive enterprise.
 
He also passed on his basic philosophy of life and his values about helping others that serve as the basic building blocks of today’s Toyota Way.
 
You already know one of those values...“go, see”...which I interpret to mean that you shouldn’t sit in your office and gather all your facts from a computer screen...get out and see people and customers and find out what’s really going on in reality. It will help you make much better decisions.
 
Another fundamental Toyota Way value is finding ways to balance business needs with the needs of society.
 
In fact, our company vision has always been “to enrich society through building cars.”
 
Why is that vision so important?
 
Because it calls Toyota people to a higher cause than just building cars and making money.
 
Our founders wanted Toyota not only to create great cars, but to do it in such a way that it contributes to the betterment of mankind and future generations.
 
In other words, our mission is to develop reliable, affordable cars and trucks that provide sustainable mobility for people and commerce the world over. Now THAT’S a reason to get up in the morning and do your very best. And...when you are surrounded by people with a higher calling...you rise to the occasion and make good things happen...its human nature.
 
Your job isn’t just a job...it’s a responsibility...it’s a commitment to others...it’s a pledge to create a better world.
 
I know that may sound hokey, but there is POWER in a higher cause...and it’s the kind of “purpose” that has spurred us on over the years...boldly urging us to bring out our best and make a positive difference in people’s lives. Our strong vision has evolved over the years into two major pillars of The Toyota Way...Respect for People and the drive for Continuous improvement.
 
These values have sustained us in both good times and bad times.
 
For instance, The Toyota Way kept us on track during the 1950s when we nearly went bankrupt and our first U.S product was a dud.
 
It’s true.
 
During a recession in early 1950, Toyota experienced severe financial problems and was forced to lay off some workers...the lowest point our business ever experienced.
 
Shortly thereafter, however, the company began its comeback by supplying powerful, all-terrain utility vehicles to the U.S. Army for use in Korea.
 
That highly durable vehicle went on to become the Toyota Land Cruiser...still one of the most admired vehicles on earth.
 
Then...in the mid 1950s...Toyota realized it needed to be in business around the world to survive long-term.
 
So, it came to America in 1957, opening a showroom in Hollywood, California.
 
With high hopes and a post-war boom economy creating the need for a second family car, Toyota launched a sturdy sedan with a strange name...the Toyopet Crown. Don’t ask me why...I was just a toddler at the time...
 
The Toyopet had some remarkable features for its day, including a fuel-efficient engine that got 33 miles per gallon. Of course, gasoline only cost 31 cents per gallon in 1957, so high mileage wasn’t a huge selling point then.
 
And the Toyopet was badly underpowered compared to big V-8 engine American cars of the time...and it was difficult to drive.
 
In fact, one of our top American leaders at the time used to kid that the Toyopet drove more like a tank than an automobile...
 
And it did because it was originally designed for the roads of Japan where it was used extensively as a taxi. So it definitely wasn’t a good fit for the wide open...high-speed...highways of America.
 
After a year...Toyota had sold just 287 Toyopets and one, lonely Land Cruiser.
 
Sales peaked a year later at just over 1,000 cars and then dropped off until 1961...when we withdrew the Toyopet from the U.S. market altogether.
 
We survived as a company by selling our Land Cruiser...the only model we’ve sold continuously in America for more than 50 years.
 
So what did we learn from this failure?
 
We learned the hard way that you have to design and build products that people want and will fulfill THIER needs...not factory needs.
 
So, we spent the next 5 years studying the core needs of American consumers and returned in 1965 with an all-new Corona, a compact sedan that was powerful, economical and dependable. It became an overnight sensation and we’ve never looked back.
 
Just for fun...I thought I’d pull out a classic TV commercial for the Corona and show it to you. As you will see...we had a “blast” showing off our new product... take a look...
 
Well that was fun...but the car was serious and a key turning point to our success in America.
 
Today, Toyota is one of the largest automakers in the world. We build vehicles in 25 countries and market them in 160...more places than Starbucks sells coffee or McDonald’s sells hamburgers.
 
We have the No. 1-selling passenger car in America...Camry...the No.1-selling luxury line in America...Lexus...the brand with the youngest age drivers...Scion... and the No. 1 gas/electric hybrid...the Prius.
 
Our Corolla compact sedan is the world’s best-selling passenger car of all time and is built in the U.S., Canada and a dozen other countries.
 
During our first half-century in the United States, Toyota has made significant contributions to American business and culture by providing fuel economy, safety and hybrid technologies...sharing lean manufacturing processes such as just-in-time production and inventory control... building trustworthy relationships with dealers and suppliers...cooperating closely with government agencies...and funding community education and enrichment programs.
 
And we owe it all to our vision and The Toyota Way pillars of Respect for People and Continuous Improvement.
 
Still not convinced that values drive business?
 
Well then, consider development of the Prius, the world’s first mass-produced gas/electric hybrid vehicle. It’s another great example of our values in action.
 
During the late 1980s, we realized as company that the environment and the auto industry were on a collision course and that something had to be done.
 
With a world population of 6.7 billion people…nearly 1 billion cars and trucks on the world’s roads…and fossil fuels running low…we knew environmentally friendly cars weren’t an option, but a necessity.
 
Acting responsibly on environmental matters, however, is a particularly expensive proposition for an auto company.
 
It costs billions to develop a vehicle with environmentally advanced features…and there’s no guarantee of a quick payback.
 
Nevertheless, in the early 1990s…when a gallon of gas cost about 99 cents…we decided to develop an affordable car that would save gas AND preserve the environment without asking for any special treatment.
 
I’ve got to tell you...that as we began this quest...we received very little encouragement from other automakers.
 
Most thought building a car with two propulsion systems was far too complicated...far too expensive...and far too crazy.
 
Among our principal competitors, only Honda began development of a gas/electric hybrid car.
 
One automaker said it favored the development of diesels instead.
 
Another started a hybrid program, but on a limited basis.
 
And another company’s management said they’d offer hybrids, but only if the market demanded them.
 
Looking back on that early development of the Prius, the Financial Times newspaper noted, “Most other car manufacturers...although they had ‘just in case’ hybrid development programs of their own...sat back to watch it flop.”
 
Toyota didn’t wait.
 
And Prius didn’t flop.
 
Prius...which means “to go before” in Latin...combines a gas engine with an electric motor and other technologies to supercharge fuel efficiency and slash emissions.
 
It uses about half the fuel and is more than 70% cleaner for smog-forming emissions than the average new vehicle on the road today. And it never needs to be plugged in.
 
After introducing the Prius in Japan during 1997, we brought it to the United States in 1999 and introduced a larger, more efficient version in 2003.
 
And it’s been a huge success. To date, we’ve sold more than 700,000 in the U.S....more than half the 1.2 million we’ve sold around the globe.
 
Consumers not only love saving gas and the environment, they love the car itself.
 
In fact, Consumer Reports magazine, recently rated Prius the best overall value among all 300 vehicles it tested.
 
I drive myself to work and back in a current generation Prius...and without babying it...I still get about 45 miles per gallon and pass a lot of gas stations...and it feels good.
 
But in 6 weeks, it will get even better because we’re introducing an all-new, roomier, more powerful, more futuristic Prius.
 
It will zip from zero to 60 in 9.8 seconds and has a combined EPA-estimated rating of 50 miles per gallon. And you don’t have to wait to see it. You can check out a prototype for yourself in our display at the Denver International Auto Show starting Wednesday in the Colorado Convention Center.
 
The Prius was an important development for us and for our industry because it moved hybrid technology into mid-size vehicles that are the most attractive to mainstream customers. But we didn’t stop there.
 
Long before the Prius was a big hit, we began developing other hybrids for our lineup. We now have six Toyota and Lexus hybrids on the market...and a 7th...the world’s first dedicated luxury hybrid...will join our Lexus lineup late this summer.
 
And...just this month...we announced that total sales of Toyota and Lexus hybrids have now passed the one-million mark in the U.S.
 
What’s important to remember here is that...back in the early 1990s...we couldn’t have made a traditional business case for building a hybrid...it wouldn’t have made financial sense.
 
But as a long-term contribution to our values...society...and our higher purpose...it made a world of sense.
 
So now you know how values can drive business success in the good times, but how about the bad times?
 
After all, when times are tough, it’s mighty tempting to cut corners and stray from your focus. A lot of companies have fallen victim to that.
 
But I would submit that a company’s values, ethics and practices are even more vital during challenging times than in good times. Like a compass, The Toyota Way keeps our company on track when others are losing their way in troubled times. And we’re not alone.
 
A recent article in Fortune magazine about Jim Collins, the author of “Good to Great”, points out that great companies have learned to turn crisis situations into opportunities.
 
His research shows that companies that have strong core value anchors are much more likely to survive in rough seas...like we’re in now...than those without.
 
For instance, Collins notes that Proctor & Gamble has an incredible fabric of values and underlying principles on why they exist. Their stock-in-trade is that a customer will always be able to depend on the fact that a product is what Procter & Gamble says it is...and they build their reputation on quality.
 
As a result, when they are under pressure to start cutting corners or cutting costs by using cheaper ingredients, they’ve refuse to do it...and thus have stood the test of time.
 
Like all companies, Toyota has faced many difficult challenges. But we’ve persevered because we’ve always try to live up to our values.
 
For instance, in 1989, we wanted to establish Lexus as a new luxury car division of Toyota.
 
Our major competitors...Mercedes Benz and BMW...scoffed at us, saying Toyota couldn’t sell a luxury car because we had no prestige, image or heritage.
 
Most analysts also expressed serious doubts about our ability to succeed.
 
And ominously, two months into the brand launch, disaster struck.
 
A Lexus customer had some trouble on a crowded Los Angeles freeway. He had engaged the cruise control on his LS 400, but when he went to disengage, it didn’t respond. Panicked, he turned the car off, coasted to the side of the road and walked away.
 
Oh...and did I mention that the marketing slogan we selected for Lexus was “The Pursuit of Perfection”?
 
Talk about a defining moment...
 
If the American public perceived that Lexus vehicles were not perfect...worse yet not safe...it would have been a devastating blow to the new franchise and a major marketing catastrophe.
 
After all...three years earlier...Audi had an unintended acceleration problem, which they denied had anything to do with the vehicles themselves. However, the TV show “60 Minutes” did an expose on the situation, triggering some hysteria and Audi sales fell 50%.
 
Toyota had invested $1 billion dollars in the development of Lexus products... 100 dealers had each invested $3 to $5 million dollars in facilities…and our Chairman Eiji Toyoda had staked his personal reputation on the success of the vehicles.
 
We all knew if we mishandled this challenge, it would be the end of Lexus in short order. So, what did we do? We dug deep into our values and made a tough call...we recalled the LS 400.
 
As you can imagine, our competitors taunted us, and the newspaper headlines ridiculed us, with one stating “The Perfect Lexus—Not So Perfect.”
 
But...over the next three months...Lexus, its associates and dealers worked day and night...going to extreme lengths...to be sure every car was fixed...filled with gas ...and washed. Many dealers even gave their customers gifts to thank them for the imposition.
 
As a result, Lexus set a new standard for customer treatment...a unique point of difference that set us apart from brands with decades of luxury heritage.
 
Looking back, author Malcolm Gladwell notes in his book, “The Tipping Point,” “You could argue that Lexus overreacted…But the company emerged from what could have been a disaster with a reputation for customer service that continues to this day.”
 
Now, 20 years later, Lexus has received more awards for excellence, quality and customer care than nearly every other automotive brand.
 
JD Power and Associates has named Lexus the most reliable brand in the U.S. for the 14 of the last 15 years...and recently...as No. 1 in customer care and customer loyalty.
 
Last month, Consumer Reports named the Lexus LS 460 the best overall vehicle on the market after it came within one point of a perfect score in the magazine’s widely watched road tests.
 
And Lexus was again the No. 1-selling luxury brand in the country during 2008 for the 9th year in a row.
 
So don’t tell me ethics and values don’t matter. They can have an ENOURMOUS effect on the bottom line....Lexus is proof.
 
Don’t ask me why, but often, these important moments of truth come at the worst possible time.
 
We were tested again last spring, just about the time gas prices skyrocketed and auto sales began plunging.
 
We started receiving complaints from customers that excessive corrosion was occurring on the frames of a small number of our older Tacoma pickup trucks.
 
We did some research and found that during production at a supplier from 1995 to 2000, some Tacoma frames may not have received the kind of corrosion protection needed to withstand harsh climates.
 
After sizing up the situation, we had to make a decision on whether to issue a special service campaign and handle the issue on a spot basis...or take the much more expensive route of offering to inspect all the trucks and fixing or replacing those experiencing the problem.
 
And let me tell you...the second alternative involved BIG money at a time profits were slipping away.
 
What did we do?
 
Once again we went back to The Toyota Way playbook and determined we had to do whatever was needed to take care of our customers and stand firmly behind our products.
 
So, we established a voluntary Customer Support Program to reach out to ALL of our customers who owned 1995 to 2000 Tacoma pickups.
 
The program involved extending the warranty covering the condition from 3 to 15 years…providing free inspections at our dealers…and repurchasing trucks, when needed, at 150 percent of their top value listed in the Kelly Blue Book.
 
In other words, we not only agreed to take care of the problem, we went beyond the usual fix to let our customers know we will always back our vehicles.
 
And while this scenario is still playing out, we’ve already received much praise from our customers...our dealers...the news media...and on social media blogs and forums.
 
For instance, when we first posted the program on our Open Road Blog, we had over 12,000 visits within 24 hours and many online consumers expressed support for Toyota doing the right thing.
 
Now I’m sure...at some point in the future...we could calculate the actual cost of this program...but I doubt we could ever determine the value of the goodwill and loyalty resulting from it.
 
In fact, many of those owners with rust problems are ending up buying new Tacomas because they believe in a company that stands by its products.
 
Or...as a popular MasterCard commercial might say...the cost of taking care of customers...millions of dollars...the value of loyal customers...PRICELESS!
 
Well, we’ve covered a lot the last 20 minutes and I hope I’ve helped you to see that ethics and values are vitally important to your career and your success.
 
I wouldn’t be where I am today without the guidance of The Toyota Way...and I urge you to find your own compass as you make your way in the business world.
 
When you consider the study in Fortune that I mentioned earlier and the concrete examples of Toyota’s values in action I shared earlier... you have both scientific ...and real-world proof...that core values do matter... they do make a difference ...and they do help you turn dark clouds into a silver lining.
 
As I said at the beginning, I’ve found...that in business...doing good for the soul is not only good for the soul...it’s good for the bottom line, too.
 
So...as you move forward into tomorrow...and take your place as global leaders... I urge you remember this advice...to take this to heart...and to share it with others.
 
If you do...you’ll not help yourself...you’ll make the world a better place and leave a legacy that will live forever.
 
Thank you...good luck...and Godspeed in your studies...
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