In today's shareholder-driven business environment, companies are expected to focus resources on productive activities and divest or close underperforming business ventures. In a mature industry, where growth is low or stagnant, companies can grow by reallocating underutilized capital and personnel resources into areas where there is higher growth potential. Earnings are used to diversify for future growth and are paid out as dividends to shareholders. The process of diversification and improvements in efficiency creates redundancies in the form of employees whose skills no longer match current or future needs or facilities that are no longer useful, and these are released back into the market. Employees are retired or laid off, and assets are sold to other companies that need those resources. The aim is to run as efficiently as possible.
At Toyota, this process is reversed. Toyota plows most of its profit back into existing operations. It does not diversify much, nor does it pay a substantial dividend to shareholders, and redundant employees are trained and reassigned, not laid off. Toyota Chairman Fujio Cho explained why Toyota is a breed apart from its peers:
Every top executive at Toyota has experienced many failures. If someone fails, they are expected to fix it by themselves, and they are not supposed to repeat the same mistakes. If employees fail, they will be scolded but their careers will not be negatively affected. We have to waste resources by trying ...