The End of Leadership as We Know It

8Resilience Beats Efficiency

In 2008, when Toyota became the world's largest automaker, few saw how the source of this growth would come back to haunt the company. Much of the company's success stemmed from the Toyota Production System, better known as lean manufacturing. Focused on eliminating the seven sources of waste—overproduction, inventory, excess motion, defects, overprocessing, waiting, and excess transport—lean manufacturing has been copied by manufacturers all around the world.

Although lean manufacturing is highly efficient and profitable, it also introduces fragility into companies. A single failure can disrupt an entire supply chain, halting global operations. That's what happened at Toyota in March 2011, when a 9.0 magnitude earthquake struck Japan, causing a series of tsunamis that devastated the country's east coast. In a matter of hours, the company lost much of its supply base. The damage hit factories that made over a thousand parts for three‐quarters of the company's vehicles. Quarterly profits fell more than 75%.

In the short term, the company focused on protecting human life, aiding rapid recovery of disaster areas, and resuming production. But afterward, Toyota reviewed all its suppliers, even the most indirect, to understand how it could better balance efficiency with resilience. It decided to pull back on lean manufacturing in order to reduce its vulnerability and boost its safety margins It realized that efficiency isn't everything—that a little “waste” ...