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


Innovation Agility

For example, when Toyota’s managers conceive of a program, they investigate multiple approaches up front. At least one of these approaches is a fallback plan. It may not be the perfect technical answer to the problem, but it is reasonably certain to work within the timeline available. Engineering teams work simultaneously to develop this backup solution while they also prepare one or more other options designed to push the state of the art on functionality, space, weight, cost, or other important design parameters. Once the date for the integrating event arrives, a decision can be made on whether the “new” technology is ready. If it is, great. If not, Toyota turns to the backup solution. And the knowledge gained while investigating the new solution is not just thrown away. It is systematically captured, ready for use on the next program.

Extended Enterprise. Product development for critical components is handled by the long-term suppliers with whom Toyota has invested in innovative capability. (See “Win-Win Sourcing,” by Bill Jackson and Michael Pfitzmann, s+b Summer 2007.) Toyota’s suppliers, who happen to have the soundest financials of any Tier One suppliers in the world, are highly motivated partners in the company’s R&D efforts.

Institutional Learning. Toyota depends heavily on capturing and sharing the knowledge and experience of its people. (H. Thomas Johnson and Anders Broms’s book Profit Without Measure [Free Press, 2000], for example, describes how employees’ in-depth awareness of production and innovation processes eliminates the need for financial and quantitative controls.) The company makes systematic efforts to capture this knowledge, institutionalize it, and make it available to everyone in forms that allow them to assimilate it and act on it.

People Development. At Toyota, monozukuri (“making products”) emanates directly from hitozukuri (“making people”). The company takes great time and trouble to develop its best people. Its engineers, for instance, typically spend several months at the start of their career in sales or manufacturing positions to broaden their experience. The system reveres technical and functional excellence, and nurtures it in every way possible — in part through a strong mentoring system. One example is the shusa role itself; it’s not just their positions, but their required high levels of technical and managerial skill that place these individuals prominently among the company’s true “car guys.”

Culture. The success of the Toyota product development system ultimately depends on the company’s strong culture, which centers on a number of core values, including personal accountability, continuous improvement, collaboration, and elimination of waste.

Your company’s product development system may already have some of these qualities. At the same time, entrenched practices and mind-sets may hinder your ability to realize your innovation potential. The key is to be realistic about your current approach, to design a more agile and value-based alternative, and then to develop a plan to incorporate these ideas over the course of several years. The progression of change would not map directly onto the components of the new system — for example, you would not work first on structure and organization, then on the development process, and so on down to culture. Instead, you would embark on a set of initiatives that might look something like what follows.

Rethinking Goals
Competitive advantage can be defined as the spread between the cost of making your product and its value, as perceived by customers, relative to that of your strongest competitor. Companies can widen this gap by increasing perceived value, reducing manufacturing cost, or both. The overall competitiveness of any research and development operation is thus determined by its contribution to increasing this spread over time.

The Toyota R&D system is, in fact, explicitly directed toward widening the gap between product value and product cost. Since value is defined by the customer, Toyota’s up-front conceptual designs concentrate on clearly articulating the product’s customer value proposition. That includes the explicit articulation of ambitious and apparently contradictory goals for each project, from the 1989 Lexus LS400 to the 1997 Prius.

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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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