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 / Summer 2007 / Issue 47(originally published by Booz & Company)


Innovation Agility

The most versatile product development programs focus on essentials.

Illustration by Dan Page
One of the most critical — but often overlooked — foundations of Toyota’s competitive advantage is its product development engine: its system for conceiving and designing new cars. Working steadily on this since World War II, Toyota has built an extraordinary capability to manage a large, global product development portfolio and consistently deliver winners. Between 1994 and 2007, Toyota doubled the number of models in production, maintained R&D spending at about 4 percent of revenues, and actually reduced the number of engineers per vehicle — all while raising the bar on product quality, increasing vehicle functionality, and reducing total time-to-market.

Toyota’s product development system is particularly notable for the contribution it makes to the company’s overall performance. The company’s quality-oriented design philosophy reduces product costs; the greater durability and reliability of its vehicles reduces warranty costs. This in turn provides more capital for investment in innovation, while keeping the R&D spending low as a percentage of revenue. With increased capital and shorter R&D cycles, Toyota can launch more new vehicles than its competitors in the same timeframe, trying new designs in the market sooner. Faster market feedback means less reliance on long-range “guesses” about customer preferences three years hence. This significantly reduces Toyota’s market risk.

For example, Toyota had the cash in the 1990s to be able to make long-range investments in hybrid (gasoline–electric) technology without needing immediate returns. This experimentation made it more probable that the Toyota hybrid lines, such as the Prius, would eventually become market leaders. In March 2007, Toyota announced an even more audacious goal: to create a new standard computer operating system, the equivalent of Microsoft Windows for automobile-based computer systems, to be released by 2015. For Toyota (or any company) to credibly pursue two such dramatic goals in tandem requires a virtually unprecedented product development improvement capability — a process that bypasses the costs and constraints of conventional R&D methods, and that reinvests the money saved in improving its product development even further.

It took Toyota 60 years to perfect its product development process. Fortunately, your company need not wait that long to incorporate the same type of magic into its work. The trick is not to replicate Toyota’s practices (or those of any other company) piecemeal but to find your own way to achieve the same result: an innovation process that bypasses the costs and constraints of conventional R&D methods, and that continuously reinvests the money it saves in further improving its product development.

Foundations of Success
Toyota’s product development process focuses on carefully building and nurturing a set of six capabilities that are precisely orchestrated to enable the launch project to succeed. (See Exhibit 1.) The six elements form an internally consistent, self-reinforcing system:

Structure and Organization. Development teams at Toyota have struck a fine balance between their program and functional organizations. The shusa, or chief engineer, runs the program, while a bucho, or department manager, owns and runs each of the various functional engineering teams — power train, electronics, chassis, and the like. Despite his or her responsibility for the success of the program, the shusa has minimal staff and no direct authority over the functional engineers; Toyota relies not on positional authority and compliance but on its culture — with a shared goal of program success instilled broadly through the enterprise — to make it all work.

Development Process. The Toyota development model incorporates several elements to increase resale, maintain schedules, and deliver value. Each program essentially has a custom-designed development timeline that incorporates concurrent engineering (simultaneous product and manufacturing design), early systems integration (with a great deal of communication among engineers on product launch, an activity that is often seen as a waste of time in other companies), and cross-functional checks (early coordination and testing to be sure that different aspects of a vehicle will fit well together). This intensive form of coordination, which has been compared to that of the Apollo 11 moon-landing mission, allows Toyota to run parallel-path development, manage design and engineering trade-offs, and ensure flexibility. The result is significantly lower project risk than a process based on compliance, with sequential project goals, would have.

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  1. Matthew A. Clark, editor, Mastering the Innovation Challenge: Unleashing Growth and Creating Competitive Advantage (s+b Books, 2006): An omnibus of approaches for improving and expanding a product development or R&D core function.
  2. Jon Gertner, “From 0 to 60 to World Domination,” New York Times Magazine, February 18, 2007: Incisive introduction to Toyota’s unique culture and its view of the future, particularly with hybrids.
  3. Barry Jaruzelski, Kevin Dehoff, and Rakesh Bordia, “Smart Spenders: The Global Innovation 1000,” s+b, Winter 2006: What Toyota has in common with Christian Dior (plus Apple, Adidas, Petrobras, Samsung, Google, and 87 other high-leverage innovators). Click here.
  4. H. Thomas Johnson and Anders Broms, Profit Beyond Measure: Extraordinary Results Through Attention to Work and People (Free Press, 2000): Based on methods developed at Toyota and Scania, this book describes how to substitute ingrained awareness for rote metrics.
  5. Matthew May, The Elegant Solution: Toyota’s Formula for Mastering Innovation (Free Press, 2006): Inside look at the creative process that implements 1 million ideas each year.
  6. James M. Morgan and Jeffrey K. Liker, The Toyota Product Development System: Integrating People, Process and Technology (Productivity Press, 2006): For engineers; dense and detailed.
  7. Taiichi Ohno, Toyota Production System: Beyond Large-Scale Production (Productivity Press, 1988): Shusa-style wisdom from one of the originators of the Toyota production system.
  8. For more articles on innovation, sign up for s+b’s RSS feed. Click here.
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