The success of Toyota, a pathbreaking six-year study reveals, is due as much to its ability to embrace contradictions like these as to its manufacturing prowess.
Contradictions That Drive Toyota’s Success
by Hirotaka Takeuchi, Emi Osono, and Norihiko Shimizu
96 Harvard Business Review
NO EXECUTIVE NEEDSconvincing that Toyota Motor Corporation has become one of the world’s greatest companies because of the Toyota Production System (TPS). The unorthodox manufacturing system enables the Japanese giant to make the planet’s best automobiles at the lowest cost and to develop new products quickly. Not only have Toyota’s rivals such as Chrysler, Daimler, Ford, Honda, and General Motors developed TPS-likesystems, organizations such as hospitals and
The Contradictions That Drive Toyota’s Success
postal services also have adopted its underlying rules, tools, and conventions to become more efﬁcient. An industry of lean-manufacturing experts have extolled the virtues of TPS so often and with so much conviction that managers believe its role inToyota’s success to be one of the few enduring truths in an otherwise murky world. Like many beliefs about Toyota, however, this doesn’t serve executives well. It’s a half-truth, and half-truths are dangerous. We studied Toyota for six years, during which time we visited facilities in 11 countries, attended numerous company meetings and events, and analyzed internal documents. We also conducted 220interviews with former and existing Toyota employees, ranging from shop-ﬂoor workers to Toyota’s president, Katsuaki Watanabe. Our research shows that TPS is necessary but is by no means sufﬁcient to account for Toyota’s success. Quite simply, TPS is a “hard” innovation that allows the company to keep improving the way it manufactures vehicles; in addition, Toyota has mastered a “soft” innovationthat relates to corporate culture. The company succeeds, we believe, because it creates contradictions and paradoxes in many aspects of organizational life. Employees have to operate in a culture where they constantly grapple with challenges and
ﬁnd solutions by transcending differences rather than resorting to compromises. This culture of tensions generates innovative ideas that Toyota implementsto pull ahead of competitors, both incrementally and radically. In the following pages, we will describe some key contradictions that Toyota fosters. We will also show how the company unleashes six forces, three of which drive it to experiment and expand while three help it to preserve its values and identity. Finally, we will brieﬂy describe how other companies can learn to thrive oncontradictions.
A Culture of Contradictions
Most outsiders ﬁnd Toyota unfathomable because it doesn’t bear any of the telltale signs of a successful enterprise. In fact, it resembles a failing or stagnant giant in several ways. Toyota pays relatively low dividends and hoards cash, which smacks of inefﬁciency. From 1995 to 2006, Toyota’s dividends averaged only 20% of earnings. For instance, its 2006payout of 21.3% was on par with that of smaller rivals, such as Nissan’s 22.9% and Hyundai-Kia’s 17.4%, but far behind (the then) DaimlerChrysler’s 47.5%. At the same time, it had accumulated $20 billion of cash, leading some analysts to call it Toyota Bank.
Toyota views employees not just as pairs of hands but as knowledge workers who accumulate chie – the wisdom of experience – on the company’sfront lines.
problems and must come up with fresh ideas. That’s why Toyota constantly gets better. The hard and the soft innovations work in tandem. Like two wheels on a shaft that bear equal weight, together they move the company forward. Toyota’s culture of contradictions plays as important a role in its success as TPS does, but rivals and experts have so far overlooked it. Toyota believes...