To a casual observer, Toyota's ascent in the global auto industry reads like a rags-to-riches story. In 1950, a crippling labor dispute forced its factories to close for two months, and it almost went bankrupt. As a condition for refinancing its loans, Toyota had to lay off one-fourth of its work force, and president and auto company founder, Kiichiro Toyoda, resigned. In 1957, Toyota's first export to the United States, the Toyopet Crown, was poorly received, and the unsold inventory was withdrawn. Fifty years later, however, the Corolla, the Camry, the Lexus, the Prius, the Scion, and the Tundra have become household names, and today Toyota rivals General Motors as the world's largest automaker. Toyota is now recognized as a paradigm of superior performance among the world's best-run, most successful manufacturing companies.

To an industry observer, however, Toyota's success is hard to understand. The company moves gradually with bursts of advancement in big leaps. It is frugal with resources yet spends extravagantly on people and projects. It is operationally efficient—thanks to cost-effective production practices such as the Toyota Production System—but redundant in human resource management. It cultivates an environment of stability and paranoia at the same time. It is hierarchical and bureaucratic, but encourages dissent. It demands simplified communication while building complex, multilayered communication networks.

Moreover, to a professional manager or MBA, Toyota's ...

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