Profit Over Principles

Profit Over Principles
Cal Thomas
Tuesday, March 02, 2010

When Toyota President Akio Toyoda testified last week before the House Committee on Oversight and Government Reform, an attitude was exposed that Rep. Dennis Kucinich (D-OH) correctly characterized as fostering a "cutthroat corporate" environment that placed costs ahead of quality and safety. Such a priority would have been anathema to Toyoda's grandfather, Kiichiro Toyoda, who founded the company and turned it into an automotive juggernaut thanks to a business philosophy created by an American named W. Edwards Deming.

Deming believed in a business model that puts product quality and company relationships between workers and management first, favoring continual and systematic improvements of staff and of work processes. His philosophy dominated Toyota for more than 50 years. Quality products followed. Profit was the inevitable result.

Longtime Toyota observer H. Thomas Johnson, a professor of business at Portland State University, has written that Toyota's current quality crisis "reflects disastrous policies adopted after 2000, when top management's thinking changed sharply in a direction that, while consistent with that of most other Western companies, would never have been tolerated at Toyota in the past."

That change came when Toyota management decided to overtake General Motors as the world's largest carmaker and placed immediate financial gain over quality and safety. As a result, quality and safety suffered and Toyota now risks losing market share and profits. It is a flawed model, one that affects governments as well as companies. A major reason for America's rising national debt is that our government has not focused on systems that produce the best results, but on political strategies that provide short-term benefits to politicians. We observe this most glaringly in the debate over health care "reform." The Obama administration and the congressional Democratic leadership focuses on sob stories and calls for "fairness," instead of on proposals that will produce results that benefit a majority of the nation.

There is plenty of recent history where management (and government) reversed sound priorities and proven results leading to dysfunction in both.

In 1982, following the deaths of seven people in the Chicago area who had taken Tylenol laced with cyanide, Johnson and Johnson put the welfare of doctors, nurses and patients first, fixing the problem with tamper-proof bottles.

In 1990, Perrier recalled its bottled water after benzene was discovered in some bottles sold in North Carolina. Even though the Food and Drug Administration said there was no danger, the company recalled its entire inventory, thus preserving the purity of its reputation, along with the quality of its water.

An example of the wrong response to a quality control issue occurred with Ford's Pinto whose gas tanks ruptured and caught fire in rear-end collisions. In 1968, the Ford Motor Company, adopting a recommendation made by then vice-president Lee Iacocca, introduced a domestically produced subcompact car. Hoping to gain a large market share, Pinto was designed and developed on an accelerated schedule. While profits became supreme, quality began to suffer. After lawsuits were filed by victims and their families, Ford management appeared to prefer the advice of their attorneys who said it was less expensive to pay off lawsuits than to fix the gas tank problem. Ford's image (and sales) suffered. Management eventually got the message and started producing better cars, announcing in a media campaign, "At Ford, Quality is Job 1."

Like Ford, Toyota can restore its tarnished image if it reverts to its previous business model, which proved hugely successful throughout most of the company's existence.

It would be nice if the U.S. government adopted the earlier Toyota model and embraced those principles. Focusing on excellence before outcome produces the desired outcome. It works in health, education, automobiles, government and virtually anything else to which it is applied. We know what works. Why must so many of our leaders keep relearning the same lesson?