"Our Endless Challenge Toward Innovation"

Tuesday, October 21, 2003

Mr. Fujio Cho
President, Toyota Motor Corporation

We live in a world marked by constant change, and the changes that took place in the auto industry over the past couple of decades are all of great significance and magnitude. Besides having to constantly improve the basic functions of an automobile, we must now take on the stiff yet exciting challenge of developing environmental technologies, not only so that we can have eco-friendly vehicles but so that we also make it easy to recycle and reuse vehicles and materials. The past dozen years or so have also ushered in a fascinating world of information technologies, which we must also incorporate into our products. All of this requires a new approach to technological innovation. And the steady march of globalization means we must produce vehicles in local markets overseas to meet local specifications, regulations and tastes. We and our products are more accountable than ever to individual shareholders and foreign ownership, requiring us to establish a transparent organization with proper disclosure of business that operates in compliance with global standards. All of these elements require changes in management thinking and practices. Toyota remains a strong company because we have always squarely met the challenges of change head on with a proactive attitude. And this has enabled us to perform well year in and year out even through harsh economic times.

The corporate culture of Toyota is characterized by an endless pursuit of innovation. We use the word "kaizen," or continuous improvement, which has received much attention over the years at home and abroad. It is the first word that comes to mind when we think of Toyota. Promoting innovation through kaizen means keeping abreast with changing times through a daily and repetitive process of constant trial-and-error efforts that lead to tangible and effective improvements, which are then spread horizontally across the company. Kaizen is therefore constant change, or a daily commitment to improvement on a daily, incremental basis. In order for kaizen to work, it must be driven by needs and goals so that people will be motivated to achieve them. Setting high goals is a high-priority mission of management. Kaizen also puts the challenge of finding new solutions to problems and improvements to processes in the hands of your people. Education and training of your people is therefore vital. Management must be visible and straightforward so everyone can understand and mobilize around tasks. And people must be allowed to think. At entry level, you may be trained to perform a certain procedure but eventually you'll be responsible for improving that procedure. Value-added manufacturing basically comes down to the quality of your human resources.

The automotive industry remains a growth industry. Only one-third of the world's population enjoys the benefit of personal automotive transportation. Accompanying the great market potential that still exists for the automobile, however, are ever more stringent regulations such as those regarding emissions. Environmental technology is now the biggest key to winning in this industry. We have to prepare for the emergence of a revitalized and recycling based society, which means costly, difficult yet necessary innovation in eco-friendly technologies. One answer has been embodied in our Prius, which employs a hybrid petrol-based engine with electrical motor, tapping on the strengths of each system and creating complementarities between them. While many have seen the hybrid car as a bridge technology to fuel cell technology, our dedication to constant innovation and change has served us well as the development of hybrid technology spawns also important peripheral technologies. As a result, other auto manufacturers are now manufacturing hybrid cars, making it not a "bridge" technology but a "key" technology.

Globalization has prompted us to make structural changes as well. In June, we halved the number on our board of directors and established non-board managing directors in charge of divisional operations, filled by non-Japanese and younger talent as well as veteran Japanese managers. Senior managing directors were empowered with the highest responsible for each division and function, and they participate in management as members of the board of directors. This organizational change has been made to speed up decision making through a slimmer, less-layered structure and flatter operation. In the local market, change has been very abrupt and the product mix has changed dramatically.

Continuous innovation is simply not possible without quality management that conducts a constant dialogue with everyone in the organization to ensure understanding, unity and to plant the seeds for future generations of management. Our dialogue with society is very important and starts, of course, with a customer first policy. We sold a million Corolla units last year but there are more than 10 different types of Corolla because the vehicle must be modified to meet specific market tastes. We must have a good dialogue with the shareholder, which means showing stable corporate governance that produces long-term growth, improved corporate value and greater shareholder value. Despite our constant pursuit of innovation, there are of course some things that must not change. Knowing what needs to change and what must not is a critical role of management. Cherishing your people is a very important unchanging value at Toyota that ensures that our endless challenge toward innovation will continue to product positive results.

Titles of speakers, names of companies, etc., were correct as of the time when the forum was held.