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Toyota – An Innovation Audit

By Choon Long SIA

Table of Contents

Abstract ......................................................................................................................................................... 3

Introduction .................................................................................................................................................. 3

Organisation Background .............................................................................................................................. 3

Literature Review .......................................................................................................................................... 3

Idea Sourcing ............................................................................................................................................. 4

Learning .................................................................................................................................................... 4

Process ...................................................................................................................................................... 4

Organisation .............................................................................................................................................. 5

Networks/Linkages ................................................................................................................................... 5

Strategy ..................................................................................................................................................... 6

Measuring Innovation ............................................................................................................................... 6

Review Conclusion .................................................................................................................................... 7

Methodology & Limitation of Study ............................................................................................................. 8

Findings ......................................................................................................................................................... 9

Processes, Learning and Organisation ...................................................................................................... 9

Networks and Linkages ........................................................................................................................... 11

Strategies Deployed ................................................................................................................................ 12

Audit Results ............................................................................................................................................... 13

Conclusion and Recommendations ............................................................................................................ 14

Appendix 1 – Innovation Audit Framework Questionnaires ...................................................................... 15

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Appendix 2 – Summary Toyota’s Major Organisational Wide Initiatives, Frameworks and Ideas ............. 17

Appendix 3 – Toyota’s Distribution and Manufacturing Plants .................................................................. 20

Appendix 4 – Strategic Theories Combined ................................................................................................ 20

1. Innovation Defined Throughout Academia ................................................................................ 21

References & Bibliography .......................................................................................................................... 22

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Abstract

Toyota grew from a looming factory to the no.1 global automaker today. The paper walks through five

areas of innovation covering idea sourcing, learning, processes, organisational structure and strategy.

Following which we will match our research with the innovation management techniques within Toyota

and provide an unbiased measurement against the five areas of study.

Introduction

After a 3 month visit from Ford in 1950, at that time; the most modern automotive manufacturing firm

in the world, Eiji Toyoda felt that the system could be improved further (Roos et al., 1990).1So the

journey began to create a production system that was focused on reducing waste or “muda” in

Japanese. Although this article is meant to be an innovation audit, the story of Toyota is one of awe and

inspiration.

Organisation Background

Toyota Motors began life as an automotive department of Toyoda Automatic Loom Works Ltd in 1933

before incorporation in 1937 (Toyota Motor Corp., 2009). The Toyota group of companies however was

founded in 1918 by Sakichi Toyoda which the Japanese patent office in 1985 has dubbed as one of the

top 10 most influential inventors in Japanese history (Mass & Robertson, 1996). Although Toyota Motors

helmed by Sakichi’s son Kiichiro, known for his passion for reverse engineering Chevrolet engines; the

labour and financial crisis of 1950 forced his resignation and put in place Eiji Toyoda; and his

collaboration with Taiichi Ohno, developed the manufacturing process famously known as the Toyota

Production System (Dawson, 2004). By 2007, Toyota became the largest automaker in the world

through sales (Associated Press, 2007) and ranked 1st for Automotive and 10th in Fortunes Global 500

2009 (Fortune, 2009).

Literature Review

We need go to the roots of innovation before we can understand the ruler in which we use to juxtapose

and measure Toyota. The word innovation has its origin in Latin; “Innovatus” circa 1540-1545 which

means “to renew or change” (Dictionary.com, 2010). In academia, innovation has been linked as a

1 (Roos, Womack, Jones, & Carpenter, 1990, p. 48)

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creatively destructive process (Schumpeter J. A., 1934) required for economic growth, and a specific

instrument for entrepreneurship (Drucker, 1985,2002) and is distinguished between invention and

imitation (Schumpeter J. A., 1942,2003). Schumpeter also claimed that while the inventor creates ideas,

the entrepreneur made things happen (Schumpeter J. A., 1947). The definition has since been expanded

with the need to meet market needs (Kline & Rosenberg, 1986) and add economic value to the firm

(Garcia & Calantone, 2002). Even an attempt of creating something novel is considered innovation

(Department of Trade and Industry (UK), 2003) and can cover product, process and services (Luecke &

Katz, 2003). Lastly we end with a strong call to action from the CEO of Procter and Gamble, Lafley; to

embrace consumer intimacy as the core focus of innovation (Lafley & Charan, 2008).

Idea Sourcing Sources of innovation can be divided into two, knowledge pull; a result of scientific research versus need

push coming from market and user demands (Tidd & Bessant, 2009, p. 229). Von Hippel explored how

user centric innovation can offer major advantages over manufacturer centred innovation (Von Hippel,

2005) and integrating these two approaches were discussed by Chesbrough under the banner of “Open

Innovations” (Chesbrough, 2003), (Chesbrough, 2004). Approaches to solicit and generate ideas from

the users were explored through analysis of “Lead Users”-individuals who benefit considerably from

new products (Urban & Hippel, 1988); and recently an “Innovation Map” which collates user’s job

functions to needs, was developed to generate new innovation ideas (Bettencourt & Ulwick, 2008).

Learning In order to benefit from these sources of innovation, the Organisation needs to have the capacity to

learn and retention of prior knowledge is required to exploit new one (Cohen & Levinthal, 1989).

Introduced as “Absorptive Capacity” (Cohen & Levinthal, 1990) but later refined into subsets of potential

versus realized capacity where the former focuses on knowledge accumulation and assimilation; while

the latter on knowledge transmission and exploitation (Zahra & George, 2002). Levinthal also added to

the study of learning by defining three types of myopia which can stammer learning; namely

“Temporal”, too much short term focus; “Spacial”, biasness to subjects closest to the learner and finally

“Failure”, focusing too much on successes versus understanding failures (Levinthal & March, 1993).

Process A process approach analyzes the dynamism required for innovation to flourish, through a leading

research by Utterback; where the firm is seen as highly integrative and innovation is impacted by the

mutualism of competitive strategy, its environment and the firm’s processes. “Innovation Life Cycle”

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was introduced where product innovation reduces as the market matures and the firm then focuses on

process innovation. At a macro level he also noticed that the existence of a dominant design usually

means a less likelihood of new entrants but by unexpected industry shattering innovation (Utterback &

Abernathy, 1975), (Utterback & Suarez, 1993), (Utterback J. , 1994). From the author’s point of view, this

could be a reinitiation of Utterback’s product innovation cycle. This view of innovation happening

unexpectedly was explored further by Christensen which posits that the real reason behind a firm’s

demise is its own fixation with their main shareholders and not putting enough focus on upcoming

destructive innovations and a totally new market of customers (Christensen C. M., 1993), (Christensen &

Bower, 1996). This study was highly enlightening as it is counter intuitive to the notion of listening to

your customers. Christensen’s research culminated in a contingent approach to disruptive innovation

where there is no one size fits all theory (Christensen & Raynor, 2003). Having an innovation process

implies predictability in generating new ideas and moving them to market and an example is Cooper’s

“Stage Gate Process” (Cooper R. , 2000). Another notable area of process management is the planning

and management of resource constraints while managing a portfolio of innovation projects

(Wheelwright & Clark, 1992).

Organisation In addressing innovation and exploring the unknown, we see more leadership required compared to

management for discontinuous business challenges (Tidd & Bessant, 2009, p. 150) and that greater

structural flexibility is required when decision making is more contingent (Perrow, 1967). Top leadership

also needs to provide support and commitment for innovation, be in tuned with the market and ensure

structured methodologies put in place (Pervaiz, 1998). Organisational structures that better support

innovation includes “Simple”-organic, centralized decision making typified by start-ups; “Adhocracy”-

project type organisation to handle complex and unstable scenarios) and “Mission-Oriented”-emergent

scenarios where vision and shared values are important (Mintzberg, 1979). The concept of “Key

Individuals” appear with linkages to product champions; individuals who drive and promote the

innovation (Chakrabarti, 1974), (Howell & Higgins, 1990). Thus leaders form the climate and the culture

of the organisation and a challenging environment, support for new ideas, trusting, open and lively

climate is highly required for successful innovation (Ekvall, 1996).

Networks/Linkages Innovation networks are required to facilitate rapid development of new ideas and a network is defined

as a “complex, interconnected group or system” (Tidd & Bessant, 2009, p. 284) however there’s little

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consensus on what constitutes a network and alternatives have been deemed vague (Debresson &

Amesse, 1991). Innovation is affected by two ways, the network’s instability and activity cycles

(Hakansson, 1995), where these cycles can either constraint or facilitate innovation. Those that create

opportunities are deemed path creating (Galaskiewicz, 1998) and inter-organisational networks as basic

learning units are particularly well suited to innovation in dynamic, competitive environments. However,

networking barriers exists in the form of technology and institutions; where partners need to give way

to only one technology and secondly, institution boundaries and corporate objectives can conflict; not to

mention further disruptions from ideology, demographics as well as ethnicity (Birkinshaw et. al., 2007).

Strategy An abstraction of innovation strategy would be a life cycle based, rational viewpoint versus an

incremental strategy of adjustments on the fly (Tidd & Bessant, 2009); or a deliberate versus emergent

strategy (Mintzberg, 1978). Another strategy would be “leadership” versus “followership” or “learning”

and “imitating competitors” (Porter, 1980). As strategy is multivariate and influenced by the ecosystem

of the company and its playing field, the innovation strategy needs to match the dynamism through

management of the risks, integration, interdependence and the initiative itself (Adner, 2006). Strategy

also looks into the organisation and continuous competitive advantage can only be achieved through

the firm’s core competencies and the ability for management to corral corporate resources and

technology to adapt to new opportunities (Pralahad & Hamel, 1990), (Pralahad & Hamel, 1994).

Innovation strategy also looks at opportunities, for example, exploiting and creating uncontested

markets - Blue Ocean Theory (Kim & Mauborgne, 2005) and secondly massive customization to serve an

aggregation of unique segments that would other wise be uneconomical – The Long Tail Strategy

(Anderson, 2006). The strategy for moving innovation to the masses was marked by Roger’s seminal

book “Innovation Diffusions” (Rogers, 1962,1983) which tracks the processes required for adoption and

communication across early adopters and laggards and the process of innovation itself. More recent

authors like Moore elaborated on “chasms” which exists between visionary users and adopters and how

to bridge that gap (Moore, 1999). The strategy of anticipating and reacting to new entrants and

disruptive innovation was also covered by Christensen in “The Innovator’s Solution” (Christensen &

Raynor, 2003).

Measuring Innovation Unfortunately, one will find little congruence in defining the characteristics of innovation and its degree

of innovativeness (Garcia & Calantone, 2002) and from the same study on innovation typography;

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researchers have largely agreed on a dichotomous descriptor of extent - “radical versus incremental”

(Balachandra & Friar, 1997), (Atuahene-Gima, 1995), (Freeman, 1994), (Kessler & Chakrabarti, 1996),

(Lee, 1994). (Schumpeter J. A., 1934), (Stobaugh, 1988), a concept deemed incomplete hence “modular”

and “architectural innovation” was introduced (Henderson & Clark, 1990) in between those scales. In a

review of innovation measurement methodologies; measurements appear to happen in an ad hoc

fashion and relies on dated, unbalanced or under-specified models of innovation, however; seven

measurements was abstracted, namely; inputs, knowledge management, innovation strategy,

organisation and culture and portfolio management, project management and commercialization

(Adams et. al., 2006).

Review Conclusion

Figure 1 – Author’s attempt at visualizing the Innovation’s Literature Review (Items in red not covered and in beige marginally due to the limitations of this article)

While the definitions have been relatively consistent and slowly appended upon; the ways and metrics

to measure innovation varies considerably and can be contentious. There are also notable gaps in

measuring an Organisation’s “perseverance” and learning through crisis; although researched differently

as a means for organizational change and improvement (Dutton, 1986), (Bruland, 1982), (Carley &

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Harrald, 1997). Secondly, the author wishes to pose a question on whether religious beliefs or even

geographical and natural resources play a role in national level innovation. In “Guns, Germs and Steel”,

an observation was made that the countries with the most abundant natural resources typically have

the lowest level of technological advancement, for example; Papua New Guinea (Diamond, 1997,2005).

Looking at how rates of innovation differ between nations and the stark disparity between developed

and undeveloped status, a critical review may prove enlightening. Toyota can be the microcosm for a

study of an innovative organisation which is steeled by war as well as manned by a mostly harmonized

Japanese race and culture, potentially shedding some light on these arguments.

Methodology & Limitation of Study

The research is conducted via documentary analysis of secondary sources, Toyota’s corporate website

and official documentation. As we are limited by space, the study will go through Toyota’s innovation

management practices within the area of learning, organisational structure, strategy, processes and

linkages as per the Tidd and Bessant’s framework for innovation audit (Tidd & Bessant, 2009, p. 601)

with a primary focus on processes and Toyota’s innovation strategy.

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Findings

Processes, Learning and Organisation

Figure 2 - The Toyota Way 2001. Source: (Toyota Motor Corp, 2009)

The Toyota Way was introduced in 2001 as a mechanism to entrench Toyota’s philosophies to their

subsidiaries worldwide (Toyoto Motor Corp., 2006, p. 49) and the illustration above summarizes the two

pillars of the Toyota Way, “Respect for People” and “Continuous Improvement” and it’s components of

Challenge, Kaizen, Genchi Genbutsu, Respect and Teamwork. Although made famous by Liker in “The

Toyota Way” (Liker, 2004), the process roots run deep into Ohno’s “The Toyota Production System

(TPS)” (Ohno, 1988) and Shingo’s study of TPS (Shingo, 1989). Little however is known about Toyota’s

product development cycle but based on a recent research also participated by Liker (Morgan & Liker,

2006), we see strong congruence between Cooper’s Stage Gate process albeit enhanced with “Lean”

principles of TPS.

Figure 3 - Stage Gate Process Source: (Cooper, Edgett, & Kleinschmidt, 2002)

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Stage Gates Toyota Development Process (Toyota InfoTechnology Centre, 2010)

Toyota’s General Processes, Principles and Cultural Norm

Discovery Phase 1: Exploration Analysis of Future Needs and Market as well as trends in IT related industries.

Creative Idea Suggestion System (Yuzo, 1991)

Scoping

Business Case Phase 3: Proposal Justification to commercialize the product

“Hoshin Kanri”-Directing and Motivating (Liker, 2004, pp. 262-264) where each new product needs to be aligned with corporate goals.

Development Phase 2: Research & Evaluation: Prototyping & preceding development. Benchmarking external technologies and construction of test bed environments

“Poka-Yoke”- (Shingo, 1989, p. 22), previously “Baka-Yoke” (Ohno, 1988, p. 122)

“Obeya”-Big Room (Liker & Meier, 2007, p. 316)

Kaizen (Imai, 1986), (Brunet & New, 2003)

Testing and Validation

Phase 4: Field Experiments Actual test drives in various conditions

“Genchi Genbutsu” (On site-Hands on) and “Genba” (The shop floor where it happens) (Toyoto Motor Corp., 2006, p. 49)

Launch Phase 5: Commercialization The sales, marketing and distribution of the product.

Out of scope of study.

The exploration phase coincides with Cooper’s “Discovery & Scoping” and the creative idea suggestion

system introduced in 1951 was crucial in building a library of over 20 million ideas within a span of 40

years (Yuzo, 1991). Toyota’s second stage “research and development” interestingly, do not coincide

with Cooper’s “business case” phase. The author feels that this can potentially foster more innovation as

the engineers are allowed to develop preliminary research versus going through a protracted inspiration

sapping justification process. Instead, principles like “poka-yoke”- mistake proofing (Shingo, 1989, p. 22)

are applied through “front loading” the product development process where engineering rigor, and

designed-in countermeasures, along with true cross-functional participation are conducted to maximize

the effectiveness of development (Morgan J. , 2010). From the development of the Prius, “Obeya”-Big

Room (Liker & Meier, 2007, p. 316) was introduced where line managers and engineers all work in a

room to foster collaboration, idea exchange and rapid decision making. The third stage, “proposal”

needs to abide by “Hoshin Kanri” (Liker, 2004, pp. 262-264) where alignment with corporate objectives

are crucial to decide whether to proceed with the subsequent stage of “Field experiments”; where the

prototype is built and finally commercialized.

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Perhaps more interestingly is a somewhat critical study of the working culture within Toyota by Masaki

Saruta. According to Saruta, the objective of Toyota management is the indoctrination of the Toyota

Way in creating the “Toyota Man”. The culture is coercive to the point where the worker is reluctant to

be absent or make mistakes for fear of ‘letting the team down’ with emphasis on long working hours even

at the expense of family life. Toyota has even created its own ‘Toyota calendar’, disregarding national

holidays, however incentives are provided in the form of life time employment and high wages (Saruta,

2006).

Due to the success of Toyota’s many processes and results, Toyota scores “very high” in aspects of

process, learning and organisation. Although some may cringe at the level of commitment expected of a

Toyota employee.

Networks and Linkages Today, Toyota has 8 major research facilities across the world in Germany, U.S., Belgium, France and

Australia including Japan (Toyota Motor Corp., 2009) and Toyota is cognizant of the importance of the

Toyota Way to break down the network barriers mentioned by (Adams, Bessant, & Phelps, 2006). The

networking aspect are also exemplified in how the plants are disbursed in Japan, the twenty

manufacturing and distribution facilities are arranged like a massive manufacturing chain, moving from

less complex parts to gradually more complex components from engines to eventually vehicle

production plants (see Appendix 3).

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Figure 4 - Customer Focus Activities. Source: (Toyota Motor Corp, 2009)

Although Toyota has a customer first objective and the formation of Customer Assistance Centre in

1982, (Toyota Motor Corp, 2009, p. 50) the approach is more focused on reactive customer feedback.

There is a lack of evidence that Toyota practices open innovation as explained by Chesbrough

(Chesbrough, 2003). The audit on “Networking” is still “high” taking into consideration its global

research presence.

Strategies Deployed

The Toyota Prius is a classic example of Radical Innovation and we are able to map its progress through

innovation life cycle and dominant design (Abernathy & Utterback, 1978) and Roger’s innovation

diffusion (Rogers, 1962,1983). The management in Toyota showed great foresight by launching the Prius

in 1997; although it was not the first Hybrid Electric Vehicle (HEV), it was the world’s first “mass

produced” HEV and Kim & Mauborgne would have called the launching - an endeavour into uncontested

space (Kim & Mauborgne, 2005) if not for Toyota actualizing the theory before Blue Ocean Theory was

popularized.

Toyota had to market the Prius to “innovators” and they did so by providing a 21st century experience

dubbed “driving the future” where Toyota added a number of features, including an Advanced Parking

Guidance System, a push-ignition switch, Smart Key and an electronically controlled gearshift (Toyota

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Motor Corp, 2009, p. 6). Although limited to data from the U.S we see that hybrid vehicles only make up

1.75% of total vehicle sold in United States for 2009 but the Prius commands 48% of a market share

consisting of 24 other HEV models (US Department of Energy, 2010). These two facts show that hybrid

vehicles are still within the fluid stage with more players offering varying degrees of HEV technology and

the coexistence with existing gasoline based vehicles.

Figure 5 - Blue Ocean, Innovation Diffusion and Dominant Design combined with reference to the Pirus. Source: (see Appendix 4)

Because of Toyota’s foresight and Prius’ success with over 2 million vehicle sold as of August 2009

(Toyota Motor Corp., 2009) we rate Toyota’s innovation strategy as extremely high.

Audit Results

The audit result was formed from the questionnaires in Appendix 1 and in reflection of the findings

above. In summary; Toyota scores highly overall, in particular for areas of strategy, learning and

organisation. We’ve assessed that the score of Linkage although still high but lower than expected at

5.25 was because of Toyota’s poor handling of the vehicle recall arising from faulty accelerators in 2009.

Also, although Toyota has a strong sense of idea generation and innovation the scales tipped internally

versus looking externally when it comes to sourcing innovation.

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Figure 6 – Toyota Innovation Management Area Assessment Scoring

Conclusion and Recommendations

The findings show that Toyota is an intense innovation engine with highly committed employees

stemming from years of cultural evolution and the creation of an almost mythic Toyota Production

System. We see leaders in Eiji Toyoda and visionaries in Taiichi Ohno confirming the research on

leadership. We also see a world wide network of research and strategic moves that created the

successful Prius. There are however the following recommendations, Toyota needs to embrace open

innovation by soliciting idea from the crowd and secondly, create more products that are able to tap

onto emerging markets which are potentially the new Blue Ocean. By filling these gaps the author

believes that Toyota will continue to grow well into the 21st century.

6.88

5.25

6.886.00

7.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00Learning

Linkage

OrganisationProcess

Strategy

Toyota's Innovation Audit Scores

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Appendix 1 – Innovation Audit Framework Questionnaires

The following questionnaire represents the team’s assessment of how we evaluated Toyota’s standings

within the five areas of innovation management introduced by Tidd and Bessant (Tidd & Bessant, 2009,

p. 601).

Innovation Audit Area and Questionnaires Average Score and Individual Scoring

Learning 6.875

15. We learn from our mistake 7

20. We systematically compare our products and processes with other firms 7

25. We meet and share experiences with other firms to help us learn 6

30. We are good at capturing what we have learned so that others in the Organisation can make use of it 7

35. We are good at learning from other Organisations 7

4. There is a strong commitment to training and development of people 7

40. We use measurement to help identify where and when we can improve our innovation management 7

9. We take time to review our projects to improve our performance next time 7

Linkage 4.25

10. We are good at understanding the needs of our customers/end users 7

14. We work well with universities and other research centers to help us develop our knowledge 7

19. We work closely with our customers in exploring and developing new concepts 1

24. We collaborate with other firms do develop new products or processes 4

29. We try to develop external networks of people who can help us, e.g. with specialist knowledge 3

34. We work closely with the local and national education system to communicate our needs for skills 4

39. We work closely with 'lead users' to develop innovative new products and services 1

5. We have good 'win-win' relationships with our suppliers 7

Organisation 5.875

13. People are involved in suggesting ideas for improvements to products or processes 7

18. Our structure helps us to take decisions rapidly 5

23. Communication is effective and works top-down, bottom-up and across the organisation 5

28. Our reward and recognition system supports innovation 6

3. Our organisation structure does not stifle innovation but helps it to happen 3

33. We have a supportive climate for new ideas - people don't have to leave the organisation to make them happen 7

38. We work well in teams 7

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8. People work well together across departmental boundaries 7

Process 4.375

12. We have effective mechanisms to make sure everyone (not just marketing) understands customer needs 1

17. We have effective mechanism for managing process change from idea through to successful implementation 7

2. We have processes in place to help us manage new product development effectively from idea to launch 5

22. We systematically search for new product ideas 5

27. We have mechanism in place to ensure early involvement of all departments in developing new products/processes 4

32. We have a clear system for choosing innovation projects 3

37. There is sufficient flexibility in our system for product development to allow small 'fast-track' projects to happen 5

7. Our innovation projects are usually completed on time and within budget 5

Strategy 6.25

1. People have a clear idea of how innovation can help us compete 7

11. People know what our distinctive competence is - what gives us a competitive edge 7

16. We look ahead in a structured way (using forecasting tools and techniques) to try and imagine future threats and opportunities 5

21. Our top team have a shared vision of how the company will develop through innovation 7

26. There is top management commitment and support for innovation 5

31. We have processes in place to review new technological or market development and what they mean for our firm's strategy 7

36. There is a clear link between the innovation projects we carry out and the overall strategy of the business 5

6. Our innovation strategy is clearly communicated so everyone knows the targets for improvement 7

Grand Total 5.525

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Appendix 2 – Summary Toyota’s Major Organisational Wide Initiatives,

Frameworks and Ideas

Period Description Objective

Launched 2005

VI - Value Innovation (BusinessWeek, 2006)

Rather than work with suppliers just to cut costs of individual parts, it is delving further back in the design process to find savings spanning entire vehicle systems. This endeavour was launched after CCC21 as a complementary activity. The Toyota Crown was said to be designed based on the VI framework.

2000-2004 CCC21 (Construction of Cost Competitiveness for the 21st Century) (Toyota Motor Corporation, 2005)

Targets 170 parts that represent 90% of total parts purchasing costs. Working with suppliers as partners to drastically lower the cost of parts by meticulously seeking kaizen, or improvement in every aspect of products, from design and raw materials to manufacturing methods. By 2004 it realized cost reduction benefit of 230 billion Yen or USD2.496 billion.

2001 The Toyota Way (Toyoto Motor Corp., 2006, p. 49)

the Toyota Way 2001 is supported by the two main pillars of “Continuous Improvement” and “Respect for People” and can be summed up in the five key terms —challenge, kaizen, genchi genbutsu, respect, and teamwork. “Continuous Improvement” implies that all employees must not let themselves become complacent about the status quo, but put forth their best ideas and efforts to seek greater added-value. In accordance with the second principle, “Respect for People,” Toyota respects all stakeholders and believes that the success of its business is created by individual efforts and growth. These two values have been expanded to Toyota employees worldwide

N/A “Genchi Genbutsu” (Go and See) and “Genba” (The shop floor where it happens) (Toyoto Motor Corp., 2006, p. 49)

One of the 5 pillars of The Toyota Way. To go to the source to find the facts to make correct decisions, build consensus and achieve goals at our best speed

N/A “muda” - waste, “muri”-unreasonableness, ”mura”-Inconsistency (Ohno, 1988, p. 41)

The result of insufficient standardisation and rationalisation of defined processes.

N/A Hansei (Liker J. K., 2004, p. 257)

Roughly translated as “Reflection” or “Atonement” it is an element of a Japanese culture which insists that when someone commits a wrong, he is to reflect on his mistakes and ensures that it does not happen again

N/A “Hoshin Kanri”-Directing and Motivating (Liker J. K., 2004, pp. 262-264)

Shared Vision or common goals which Toyota practices three times a year to ensure that the efforts made are aligned to these goals.

1990s “Obeya”-Big Room (Liker & Started with the Prius hybrid development project, where

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Meier, 2007, p. 316) only senior engineering leaders met in the room to manage the program. However became an open office arrangement where senior engineers and working level can interact and work together, focused on a specific project.

Started in 1992 revised 1997

Toyota Guiding Principles (Toyota Motor Corporation, 2006)

1. Honour the language and spirit of the law of every nation and undertake open and fair corporate activities to be a good corporate citizen of the world.

2. Respect the culture and customs of every nation and contribute to economic and social development through corporate activities in the communities.

3. Dedicate ourselves to providing clean and safe products and to enhancing the quality of life everywhere through all our activities.

4. Create and develop advanced technologies and provide outstanding products and services that fulfil the needs of customers worldwide.

5. Foster a corporate culture that enhances individual creativity and teamwork value, while honouring mutual trust and respect between labour and management.

6. Pursue growth in harmony with the global community through innovative management.

7. Work with business partners in research and creation to achieve stable, long-term growth and mutual benefits, while keeping ourselves open to new partnerships.

1970s Just-In-Time (Cheng & Podolsky, 1998, p. 2)

Taiichi Ohno is credited to invent Just-In-Time inventorying where inventory is considered as waste. Key concepts coming out of Just-In-Time is “production levelling” where the manufacturer needs to ensure a steady supply of raw materials as well as ensure that production is consistent through high quality development to keep the inventory low. Essentially an efficient management of the “flow” of materials coming in and going out of the factory. By keeping the inventory low, any disruptions in quality or production will mean a backlog of delivery. It was widely used in Japan as a means to manage raw materials disruptions during the 1970s oil crisis.

1960s “Poka-Yoke”- (Shingo, 1989, p. 22), previously “Baka-Yoke” (Ohno, 1988, p. 122)

Baka-Yoke (fool proofing) and Poka-Yoke (Mistake proofing) are methods to avoid mistakes from happening in the first place. Started in the 1960s

1957 Andon (Ohno, 1988, p. 21) Procedural charts, standard worksheets of tasks that needs to be done

Started 1951 Creative Idea Suggestion System (Yuzo, 1991)

A highly successful employee suggestion system with over 95% participation rate and adopted from Ford’s employee suggestion system. In the 1970s started the GI

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Club (Good Idea Club) that consists of successful idea contributors.

Late 1950s Kaizen (Imai, 1986), (Brunet & New, 2003)

A pervasive continuous improvement philosophy that is a key element within Japanese management. It is both continuous and incremental by nature and thirdly; participative that it includes the management, processes and people within the organisation.

1950s Kanban (Ohno, 1988, p. 27) A piece of paper that carries 3 types of information a) Pickup information b) Transfer Information c) Productivity Information. The objective is to eliminate wastage and makes it clear for supervisors and managers what must be done. Taiichi Ohno was credited for adopting this concept after observing how a supermarket chain handles its shelf products.

1920s “Jidoka”-Automation with a Human Touch (Toyota Motor Corp., 2010)

It is credited as the precursor to the Toyota Production system and invented by Sakichi Toyoda, the founder of the Toyota Group. Essentially machines that have been automated to detect abnormal conditions and immediately stopping work. This enables the men and machines to work more efficiently. Jidoka is one of the two pillars of the Toyota Production System along with just-in-time.

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Appendix 3 – Toyota’s Distribution and Manufacturing Plants

The diagram below attempts to abstract the many manufacturing and distribution plants within Toyota,

and an interesting observation appears. Toyota’s plants are shaped like an assembly line with gradually

increasing complexity of parts and products being produced.

Figure 7 - Toyota's Production Sites (Toyota Motor Corp., 2009, p. 7)

Appendix 4 – Strategic Theories Combined The graph attempts to merge the 3 theories of Blue Ocean (Kim & Mauborgne, 2005), Roger’s

Innovation Diffusion (Rogers, 1962,1983) and dominant design theory (Utterback & Abernathy, 1975),

(Abernathy & Utterback, 1978).

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Appendix 5 – Innovation Defined

1. Innovation Defined Throughout Academia

Definition Source

“A creatively destructive process required for economic growth and is distinguished between invention and imitation”

(Schumpeter J. A., 1942,2003)

“... an exercise in management and the reduction of uncertainty.” “Successful innovation needs to meet technical and market needs” and “It is a mistake to treat innovation as a well defined homogenous thing”

(Kline & Rosenberg, 1986)

“An iterative process initiated by the perception of a new market and/or new service opportunity for a technology based invention which leads to development, production and marketing tasks striving for commercial success”

(Organization for Economic Cooperation and Development (OECD), 1991)

“All innovation begins with creative ideas” (Amabile, Conti, Coon, Lazenby, & Herron, 1996)

“A discovery that moves from the lab into production, adds economic value to the firm (even if only cost savings) would be considered an innovation”

(Garcia & Calantone, 2002)

“Innovation is the specific instrument of entrepreneurship...” (Drucker, 1985,2002) “...the creation or the attempted creation of a new device, product or process resulting from study and experimentation or the introduction of something novel”

(Department of Trade and Industry (UK), 2003)

“Innovation . . . is generally understood as the introduction of a new thing or method . . . Innovation is the embodiment, combination, or synthesis of knowledge in original, relevant, valued new products, processes, or services"

(Luecke & Katz, 2003)

“The implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method in business practices, workplace organisation or external relations...

(ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT and STATISTICAL OFFICE OF THE EUROPEAN COMMUNITIES, 2005)

“...a new way of doing something or new stuff that is made useful"

(McKeown, 2008)

“... the heart of innovation today—consumer culture. All companies and especially companies such as P&G have always been focussed on the consumer. But NOT ENOUGH. Today, companies must be consumer-centric, consumer-driven and consumer created."

(Lafley & Charan, 2008)

.

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