Friday, February 24, 2006

Innovation at Toyota

Topic: Management Improvement, Innovation

The Birth of the Prius by Alex Taylor III:

By the end of 1993 the development team had determined that higher oil prices and a growing middle class around the world would require the new car to be both roomy and fuel-efficient. Other than that, they were given no guidance. "I was trying to come up with the future direction of the company," says Watanabe, who headed corporate planning at the time. "I didn't have a very specific idea about the vehicle."

Seems like a good job of providing a vision of what was needed without overly restrictive targets and goals (See: Targets Distorting the System).

In a plan he submitted to Wada in 1994, he wrote that the introduction of an improved engine and transmission system could boost fuel efficiency by 50%. But that wasn't audacious enough for Wada, who didn't want to be remembered for producing yet another Japanese econobox. "It was not enough to be a simple extension of existing technology," Wada says. One possible solution intrigued him: a hybrid power system.

While targets and goals can distract from improvement some guidance is useful. If the desire to is have incremental improvement one strategy may be reasonable but if the desire is to aim for huge improvement another strategy is likely required. In general target are far too specific and overused so as a general rule I am inclined to be biased against targets. However the proper use of "soft" targets (doubling or in the range of 10% for example) to define the scope of an effort make sense.

If Toyota can continue to reduce costs, and it most probably will, the potential for hybrids may be nearly unlimited. With its huge headstart, better technology, enormous scale, and powerful will to make hybrids an everyday alternative to the internal combustion engine--a combination no other auto maker can match--it's hard to see Toyota not dominating the industry for years to come.

Investing in innovation is risky. If successful, the benefits can build a competitive advantage that is difficult for others to eliminate. However, others will try and if you fail to execute as well in the future those benefits can disappear quickly. Toyota shows few signs of letting others catch up though.

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