9.1. Investing in Efficiency

In the industrial age, one key driver for success was higher efficiency relative to competitors. That is, minimal production waste, manufacturing flexibility, cost and quality leadership, product reliability, and quick response to market changes. In that setting, the focus is on developing systems or innovations that drive the hard side of the company. In Toyota's case, that included the Toyota Production System (TPS), its logistics management, and fast product development. Toyota's hard-nosed approach to efficiency stems from its early experiences in the auto industry. We examine two aspects of its approach: running an efficient production system and investing in manufacturing and development capacity.

Running an Efficient and Profitable Production System

Toyota was a latecomer to the automobile industry. By the time it started producing cars in the 1930s, Ford had already sold more than 15 million Model T's and General Motors was the world's largest car manufacturer, with operations spanning the globe. As a small player, Toyota relied on bank loans to finance the expansion of its plants and pay for marketing and technology development. The labor dispute of 1950 that put Toyota on the verge of financial collapse and resulted in the layoff of one-fourth of the workforce strongly influenced its current attitude to resource management.

From that point onward, every activity at Toyota City was approached with the continuous aim of eliminating muda, mura ...

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