Toyota, Process and Hydrogen

Toyota is the probably the best known company in the world that is fiercely committed to good processes.  Dozens of books have been written on The Toyota Production System (TPS) and many more on Lean, the light weight version of TPS.  Some might be inclined to think that Toyota is no longer what it was two decades ago, remembering some of the recalls and the safety problems Toyota has had in the last few years.  But consider this, in spite of any problems Toyota has had, its current market valuation is $210 billion dollars, which is greater than Ford, GM, Honda and Nissan combined.  The Toyota Camry is the best-selling car in America, and the Camry and Lexis were No. 1 and No. 2 in Consumer Report's quality survey in each of the last two years.

Every other car company in the world only wishes they were as good as Toyota, so, at least so far, Toyota remains the poster-child for what happens when a company totally commits itself to a process driven approach.

At the moment, however, I am less interested in how Toyota makes excellent cars, and more interested in how Toyota leads the market by establishing its strategic direction.  It's been said that the way to control a market is to invent it.  In the late Eighties and early Nineties, most major car companies were exploring alternatives to internal combustion engines.  In 1992, however, Toyota became to first to really commit with the introduction of Prius — a gas-electric hybrid.  Today Toyota has over half of the worldwide market for hybrid sales.  Other leading cars are still struggling to introduce their own hybrid cars.

Meanwhile, this year, Toyota is rolling out its first Hydrogen car, the Mirai.  (In essence a Hydrogen car takes oxygen from the atmosphere and combines it with Hydrogen that its keeps in a fuel tank mixing them in a “fuel-cell stack” to create electricity, that it then uses to power the car.)  Unlike the Prius, which can be charged from any electric outlet, a Hydrogen car requires filling stations than can dispense Hydrogen — in liquid form.  This in turn will require a significant investment in a new infrastructure.  (California has already made an initial commitment to creating this infrastructure in the state.)   Many companies that are just rolling out their first hybrid gas-electric cars are surprised that Toyota would introduce a second new technology in less than two decades.   Those who are more strategic, however, have long recognized that the current hybrid car is only a milestone on the way to something better.

Gas-electric cars have problems with the range they can cover.  At the same time, they are really rather polluting, since the electric plants that generate the electricity the cars use, mostly burn fossil fuels to generate the electricity in the first place.  In a sense, a gas-electric car is simply shifting carbon pollution from the gasoline car to the electric plant.  The new Hydrogen cars will make their own electricity, directly, and they will make it by using fuel cell technology, that will significantly reduce carbon pollution.  (One cute way of demonstrating this is that the new Mirai will be equipped so it can function as a generator.  In the case of an emergency, you can power all of the electric devices in your house for a week, simply by connecting your house to your car and using the car to generate electricity for the house.)

All this is happening at Toyota, in large part because Akio Toyoda, the grandson of the firm's founder, has become CEO and is driving Toyota to make a difference in how its cars interact with the environment.  The company has established teams to look 50 years ahead and plan accordingly.  This type of planning isn't usually considered when one thinks of a process-focused organization, and perhaps it shouldn't be considered a process issue.  Perhaps strategy development is more an art than a technology.  Once an organization begins to do it, however, then the organization has a major process advantage.  The organization can begin to control the market by inventing it.  You can be sure that other leading car companies, right in the middle of their own hybrid car rollouts, have been caught off guard by Toyota's latest move and are now trying to decide if they keep rolling out their newly planned hybrid offerings, or shift and try to compete with Toyota's new Hydrogen challenge.  Meanwhile, while those other car companies are still trying to figure things out, Toyota is in the position to create de facto standards for Hydrogen cars, for Hydrogen filling stations, and to otherwise define the market environment those other car companies are going to have to play in when they finally catch up.