This article is an excerpt from the Shortform book guide to "The Toyota Way" by Jeffrey K. Liker. Shortform has the world's best summaries and analyses of books you should be reading.
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What is Toyota’s leadership style? What do Toyota leaders value?
In The Toyota Way, Jeffrey Liker explains how Toyota manages its people. He covers how Toyota shows respect for its employees, promotes leaders from the inside, prioritizes teamwork, and extends relationship-building to the whole supply chain.
Keep reading to learn more about Toyota’s leadership style.
Toyota Respects Employees
According to Liker, Toyota’s leadership style emphasizes the importance of respect for its people. Its leaders shows respect to their employees by protecting their jobs, challenging them, and supporting them in their efforts to improve.
Protecting workers’ jobs. Toyota prioritizes job security for its employees, even through significant internal and external challenges. For example, during the Great Recession of 2008-09, while other car manufacturers were letting thousands of people go, Toyota didn’t lay off any members of its regular workforce. Instead, team members worked intensively on kaizen when they weren’t needed on the factory floor. Managers also privately agreed to salary reductions so no team members would be laid off. In the course of normal business, employees whose roles are no longer needed as a result of routine kaizen are redeployed to other assembly lines.
Challenging employees. At Toyota, respecting employees means challenging them. The TPS, with its lack of time buffers and inventory to hide behind, compels employees to think on their feet. Liker says that workers participate in voluntary “quality circles” outside of working hours in which employees work on complex problems together.
Supporting employees. Toyota uses a flipped org chart in which workers on the factory floor are at the top (the highest priority), says Liker. The primary role of a team leader is to support his or her team. Team leaders step in for workers who are sick or on vacation, coach team members in a hands-on way, and routinely watch their team work to prevent problems and improve processes.
Toyota Promotes Leaders From the Inside
Instead of hiring CEOs from outside the company, Toyota maintains a stable culture by promoting leaders from within. Current leaders are charged with preparing new leaders.
Liker points out that this practice:
- Ensures that managers have a broad and deep understanding of the company.
- Protects against large swings in company culture and leadership style at Toyota (as often happens when new “superstar” CEOs are brought in from the outside).
- Ensures that the decisions made by the CEO are in the best long-term interests of the company. Externally hired CEOs may be drawn to changes that favor short-term, superficial boosts to build their reputations and justify their multimillion-dollar salaries.
(Shortform note: Promoting leaders from within also helps to keep lower-level employees happy. Employees who feel they’ve been overlooked in favor of an external hire are more likely to quit or consider quitting, while employees in companies that manage promotions well are more motivated to put in extra work and less likely to leave the company.)
Toyota Encourages Teamwork and Consensus Decisions
Liker comments that Toyota teams function as extremely cohesive units. He speculates that this is because Japanese children learn teamwork at school from an early age. When making decisions, all group members offer their views and all of these views are considered in reaching the final decision. Liker comments that for big decisions, there’s usually a long consensus-building process in the leadup to the formal meeting (a process known as nemawashi (literally “digging around the roots”)), so that by the time the formal meeting is held everyone is already in agreement.
Toyota Builds Strong Relationships With Supply Chain Partners
While Toyota is slow to accept new suppliers, first making them “audition” with a series of small orders, once a supplier is in the chain Toyota is loyal and slow to replace them. Toyota’s leadership style includes showing respect for its supply chain partners by challenging them to engage in intensive kaizen. This helps the supplier increase its own efficiency. Suppliers are incentivized to engage in kaizen through the “target cost system”: Toyota calculates how much the part should cost in the first year and asks for price reductions each subsequent year (on the basis that the supplier’s kaizen practices should be reducing the cost on their end). Liker comments that Toyota is most suppliers’ favorite customer, despite its exacting standards.
Toyota also supports supply chain partners as needed, for example by making advance payments to suppliers that are struggling or offering financial assistance to dealers during the COVID-19 pandemic.
Unusually, Toyota also helps its competitors, believing that competition makes everyone stronger. For example, Toyota shared hybrid technology with other automakers and opened its hybrid patents in 2019. (Shortform note: A more cynical take on this is that opening the patents was intended to discourage competitors from leaping over hybrid technology and going straight to fully electric vehicles, an area in which Toyota can’t compete well.)
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- The story of how Toyota became the biggest automaker in the world
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