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University of Massachusetts Amherst

Family Business Center

Lessons from Toyota: Among the World's Largest and Most Efficient Family Businesses

by Shel Horowitz

Auto giant Toyota is a family business—among the most successful in the world. UMass professor Alan Robinson, returning to the Family Business Center for an unprecedented seventh appearance, says Toyota is among the world’s largest family businesses.

Toyota offers plenty of success modeling for smaller family businesses. This is a company, after all, that…

  • Enjoys a market value that's twice the combined market value of its next five competitors—with only one-sixth as many employees
  • Has never laid off an employee due to economic downturns in its entire corporate history
  • Has learned to treat employees/unions and suppliers as partners, defusing potential labor problems before they ever start
  • Makes a strong and genuine commitment to environmental improvement, in an industry widely known for its stonewalling on the issue
  • Will sometimes compensate an entire class of customers, as they did to all Lexus purchasers in 1996–97, following complaints about tire life; every purchaser got a $500 coupon, whether or not they'd complained

Robinson spearheaded a large panel of Family Business Center members, all of whom had read The Toyota Way by Jeffrey K. Liker, and all of whom had applied lessons from Toyota to their own very different businesses. The panelists shared 14 principles from the book, in a little over an hour.

David Rothenberg of interior design and furniture company Bottaro Skolnick says he's learned from Toyota's focus on long-term rather than short-term thinking, and how this plays out in union relations. Toyota took over a failed General Motors plant and reorganized it along the Toyota Way. "When it reopened, it surpassed all GM plants in US in terms of quality, productivity, inventory turns." And the union contract, says Robinson went from several hundred pages down to three, the first page of which pledged no layoffs for productivity improvement and a 40% pay cut for management if any layoffs at all were necessary.

Bottaro Skolnick embraces Toyota's principles in its reformed approach to customers and vendors. The company provides significantly improved levels of service, cheerfully fixing things that wasn't its fault, and going to bat for its customers with its own suppliers. "If we have vendor problems, we fix the problem for the customer and then drop the vendor."

For Fran Johnson's Golf and Tennis's owner, Cindy Johnson, learning to operate a very lean, fast-acting company, like Toyota, is crucial. "Most businesses are 90% waste, 10% value added." But Toyota manages to tightly control inventory so there's neither too much nor too little, and at Toyota, speed is good.

Transferring those lessons from a giant manufacturer to a single-location retail store was challenging, at first. "When I first looked, I said it's not going to apply in retail. But then I started looking at the back room. We have a huge way to go to make improvements."

Kitchen designer Curio Nataloni was also impressed by Toyota's inventory management. "Push leads to overproduction: the supplier forces product on the customer. The end result is leftover products that create waste and tie up capital. This is a no-no for Toyota. Pull leads to lean production. The customer initiates an order, which the supplier fills. Fewer leftover products. Our business uses a pull cycle. Once committed to the sale, production begins." Nataloni also has adapted Toyota's clear communication, with written specifications that delineate responsibilities of each party.

The theme of "lean" waste reduction also came up for Jeff Glaze of Decorated Products, who notes that Toyota has identified and attacked three kinds of waste: activities that add no value, uneven matching of inventory to demand, and overburdening staff or equipment. "Heijunka" is the Japanese word for overcoming these obstacles.

Another principle Glaze examined was building leaders internally, who are steeped in the culture, rather than hiring hotshot outside executives. "If you have a family and adopt an 8-year-old child who spent 8 years growing up in someone else's environment, it's hard for them to function. Try hiring a guy with 40 years in a different culture!" Toyota sees great leaders as teachers whose job is to mentor the staff and see problems as opportunities to coach.

Stop and fix problems as they occur; it's far more efficient than making a troubled batch and having to fix it later. That's the key takeaway for Joanne Goding of Moss Nutrition. "Toyota has given every person the permission to press a button, pull a lever, something to tell everyone 'we're stopping the line now to deal with the problem' (or at least a section, if not an error large enough for the entire line to stop). And they ask why did this happen, and why did that happen?

"In traditional manufacturing, you never shut down the line. At Toyota, the line is running less and their production is higher. We initiated instant meetings as problems occur. But stopping the line for us meant we could not pick up our telephones. What if they didn't place the order? We found how smooth it was to deal with the problem right in that moment."

Related to this idea is the concept of visual control of information. Bill Dempsey of office equipment company H.L. Dempsey suggested clearing away extraneous visuals, so that the important visual cues are as noticeable—and acted on as quickly—as traffic signals.

These processes may be part of why Toyota was able to maintain 96% uptime while converting an entire plant, noted Jason Mark of web developer Gravity Switch. "Ford, GM, they're lucky if they can hit 85% on a good day, never mind when they're upgrading." And another part, Mark says, may be Toyota's commitment to being a "learning organization. At Toyota, you do something bad, your job is to go and fix it. Toyota focuses on learning how to learn. Always room for improvement."

Alan Robinson's co-author, Dean Schroeder was in town from Indiana, and he pinch-hit for a couple of panelists who couldn't make the event. Schroeder noted that in custom homebuilding, shorter building cycles are more profitable—but many builders have never tried to do this. By standardizing the entire process and then revamping the time-wasters, the firm was able to drop the construction cycle by more than half, from 180 days all the way down to 75. The result: 8% increase in margin, a seven-fold increase in referrals, and 70% of all jobs completed with no "punch list" of items to be redone!

Schroeder also stressed the importance of creating exceptional teams from exceptional people. "When Toyota has a family member they're trying to groom, they move them around the company a lot. They make sure they work well with others, take other people's ideas. The people who head the Kaizen (continuous improvement) system are often times members of the Toyoda family or high performing executives slated as eventual board members. So when you're developing the next generation, do it in a team context of working with others, not just how great they are" within their own skill set and comfort zone.

These teams go beyond the company and into vendors, notes Goding. Toyota took 10 years to train a partner company in its cross-docking method, crucial to Just-In-Time inventory management. Ford, by contrast, took the cheapest bidder, quickly, and lost a million dollars when the system didn't work.

One of Toyota's principles is to see for yourself. Before redesigning the Sienna minivan, Chief Engineer Yuji Yokoya visited every state and province in the U.S., Canada, and Mexico—and, reports Jim Sagalyn of Holyoke Machine, the car's engineering reflects his commitment to be successful in the extreme range of driving conditions he found: Higher crowned roads in snowy Canada led to excellent drift control, high winds in Mississippi made him engineer for stability, Santa Fe's narrow streets enforced a tight turning radius. His observations at Home Depot led to a cargo bay that can take a 4x8' plywood sheet—and observations of how Americans eat and drink in the car much more than Japanese produced a car with 14 cup holders! Although larger, it was $1000 cheaper than the original.

Beamed in by video, Larry Grenier of Grynn & Barrett Studios had a double-barreled principle: move slowly enough to reach consensus on decisions, but once that decision is made, move fast to implement it. An example: On environmental grounds, Toyota opposed construction of a large development near its Arizona testing facility. The company sought consensus among all the stakeholders, including local government bodies. As a result, 200 acres were saved and the developer anted up several million dollars for groundwater replenishment.

Grenier incorporated a similar consensus-building process into his company's presentation of photo proofs.

Toyota’s principles are enabling them to step up as the world’s largest auto maker, but apparently can be implemented by companies of any size and industry.

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