Takeaways From Toyota: Choosing to Break Growth

Toyota shares a compromising, cliche business story with many other firms: explosive growth at the expense of consumer protection. What can we do to break this pattern in the future? The solution is about remembering that CSR minimally means producing products that benefit consumers, a principle typically lost in deploying aggressive growth strategy.

Hasty expansion means hasty management, decision-making and production

Figuring out what went wrong with Toyota isn’t complicated or new. Toyota was founded in 1934. In 2002, it gave itself eight years to double the size of a company that it had taken sixty years to grow to its 2002 size. Taking advantage of sedan and coupe niches abandoned by the U.S. automakers’ SUV oriented brands, Toyota swooped in, scooped up marketshare and was a first mover on “green” via its Prius, both in US and international markets. The news is now replete with explanations of how Toyota’s quality standards were disregarded in favor of market penetration. Do we need specifics? The best multitaskers among us admit that doing too much too quickly always, like a law of nature, comes at the expense of quality. If rapid growth isn’t leveled by a Malthusian limits/ self-cannibalization, it is limited by quality problems, sometimes in the form of product liability disasters.

How can we grow with sanity?

1. Like Slow Food, we need a Slow Growth movement

The first step to prevent over-expansion is to stop worshiping it. Without a customer-oriented bedrock, fiscal gains are only temporary and as Toyota may learn, difficult to recover. We have seen other companies forget that they are actually in the business of serving customers, not the business of expansion: Starbucks, Dell, debatably Apple, Enron and GM. Despite obvious degrees of harm, bursting bubbles historically incurs consistent, significant social cost. “Too big to fail” is another way of saying “too big in the first place.”

Part of the problem triple bottom line organizations try to remedy is the way current economic incentives and metrics disproportionately reward short-term gains. As a result, big expansions that cause earnings-per-share spikes are treated with adulation rather than suspicion. The leaders are hailed as heroes, business students are taught about the virtue of the models. How many praise-rich stories have we read about Ken Watanabe? Many, just like all the ones we read about Jeff Skilling. We will see fewer consumer protection issues, and fewer examples of rapid expansion, when we can shift incentives to reward long-term over short-term growth.

2. Grow only as fast as the worst-case lets you

Another consideration is to choose to grow at a rate that anticipates the CEO’s worst nightmare–as a means of preventing it. For example, if Toyota grew as if it could face a major recall as a result of a global products liability scandal, it would make a lot more sense to continue to obsess about quality. If Starbucks had grown as if its product would be the first thing cut out of consumer budgets in a recession, it probably would not have had the growth projections to justify opening 800 more stores. You get the idea. Growing with a rate that anticipates the accounts for the case is necessarily less profitable, but also preempts a big crash that harms long-term prospects.

3. Diversity key to ecosystems and business sustainability, as well

Another danger is that when growth itself becomes the goal, like with Toyota, skeptical voices within a company are typically silenced when they are most important. But protecting skeptics and whistle-blowers within a company is just smart business strategy for long term sustainability. Diversity of opinion works just like biodiversity, strengthening the system overall. While it is difficult to be the Roubini in company of Greenspans, research has found that pessimists tend to be more accurate and realistic. Optimists make good CEOs, but hire pessimists for CFOs and risk officers.

3. Take CSR Seriously

The final moral to the Toyota tale is that CSR is not a joke. Unfortunately, many companies take a superficial approach to social responsibility or consider charity programs an absolution from management sins. But CSR is, at minimum, about making widgets that help your customers. Thus, companies that produce things that harm customers have a parasitic rather than symbiotic relationship with customers. Companies that see potential customer harm as an acceptable cost, escort themselves and their shareholders back to the 20th century, to a business mindset that is outdated and being quickly discarded.

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