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Can the Toyota Way Be Transplanted?
Business Journal

Can the Toyota Way Be Transplanted?

A longtime Toyota executive explains the world's best selling car manufacturer's methodology -- and how it creates loyalty

A Q&A with Bryan Bergsteinsson, former group vice president, University of Toyota, Toyota Motor Sales, U.S.A.

Do you love your car? Really love it -- so much so that when it totters to the junk heap, you'll buy another one from the same dealer without whining about the price? Do you love your car brand as much as your soda brand?

Probably not, and that's a real problem for the automotive industry. Though it pours billions of dollars into manufacturing and marketing cars, too few of the industry's customers are engaged and loyal. That's because, says Bryan Bergsteinsson, very few car companies pay attention to customer engagement in their rush to ascertain customer satisfaction.

Luxury customers expect their car dealer to be a destination.

Bergsteinsson is an authority on the automotive industry. For 36 years, he rose through the ranks at Toyota, retiring in 2006 as group vice president, Toyota Motor Sales, U.S.A. Now Gallup's automotive practice leader, Bergsteinsson possesses unusual insight into the industry. In Part One of this two-part interview, he discussed the difference between customer satisfaction and customer loyalty. (See "What Price Car Customer Loyalty?" in the "See Also" area on this page.) Here, he explains how to gain customer engagement. He also takes the time to answer some questions, such as why all the new cars look alike, why the market for luxury cars is expanding, and what car this bona fide gearhead would drive if he could have any he wanted.

GMJ: You mentioned that a satisfied customer isn't necessarily a loyal or engaged one. How do you create an engaged car customer, especially a luxury car customer?

Bergsteinsson: It has to do with escalating customer expectation. A Lexus dealer in Texas once said to me, "What was good enough to melt my customer's butter ten years ago just isn't good enough today." It's true -- customer expectations continue to increase. So merely satisfying the customer is not enough.

Luxury customers certainly expect the product to perform flawlessly. But they also expect their luxury car dealer to be a destination. You know, you walk into a Lexus dealer today, and you're probably going to find a cappuccino machine and refreshments offered at no charge; if you want a soft drink or a cup of coffee, it's available to you, and you're not plugging quarters into some vending machine. You're going to find a comfortable customer lounge with private areas, Internet access, and phones available, as well as loan cars.

Loan cars are a big issue for Lexus -- when you bring your car in for service, you're most likely going to get a loan car, and it's not going to be somebody's rental car. You're going to get a Lexus loan car. Lexus and the dealers continue to invest in these amenities because they realize how important it is; that's what customers need and want.

Expectations keep rising, but amenities alone don't create loyalty -- it's the way customers are treated. All this demonstrates that having satisfied customers is just not enough. You have to delight your customers; you have to create an emotional attachment between the customer and the brand. A tremendously important part of that bond is the dealer, and that relationship is ongoing. Yes, the hardware is important, but the dealers are just as important.

GMJ: Does the luxury hardware and the dealer behavior influence the mainstream market?

Bergsteinsson: Well, it's interesting to note that the luxury segment continues to grow faster than the overall market. In other words, it's becoming a larger share of the market. Part of that's driven by the baby boomers; there's tremendous buying power in that baby boom, and they're gravitating to luxury brands.

But as far as the impact of luxury hardware goes, product attributes have become blurred. Many of the features that historically were exclusive to luxury cars -- navigation or stability control, or going back even further, things like power windows, power door locks, and upgraded stereos -- are finding their way into mainstream brands.

But that hasn't interrupted the growth of the luxury car market. And much of the growth in the luxury market is in the area of "near luxury." Near luxury are the cars that are at the low end of the luxury line, as opposed to the prestige luxury category, which includes models such as the Lexus LS460, a 7 Series BMW, and an S-Class Mercedes. The high end of the luxury category is also a strong market, but there's been a lot of growth in the lower end of the luxury line as well.

But when you look at what people are buying, there's not a lot of cross shopping between the high end of the mainstream brands and the low end of the luxury brands. I think customers tend to make the decision early on that they want to buy a luxury car, for a lot of reasons.

GMJ: Is the growing luxury market forcing mainstream brands to amp up their attributes and models?

Bergsteinsson: Yes, and so is the reality that the market is becoming more fragmented -- there are more and more offerings, and the volume realized on a particular model over its lifetime is diminishing. In the 1950s, the mainstream brands offered basically one car. It may have come in a two door, a two door hard top, a four door, a wagon, and a so on, but it was basically one car. Now, when you go into a Chevrolet or a Ford or a Toyota dealer, there is just an unbelievable array of passenger cars, crossover vehicles, vans, sport utilities, trucks -- the breadth of choice is just amazing. The market has become fragmented as manufacturers respond to customer demands. Customers like all this choice and variation.

Styling is important, and people care about styling. Buying a car is still an emotional decision.

GMJ: So why do they all look alike? To me, the new Taurus looks just like the new Impala, and they both look similar to the 2010 Porsche Panamera.

Bergsteinsson: One of the things that's driving that similarity, as you call it, is aerodynamic considerations. It takes tremendous horsepower to push a car that isn't aerodynamic -- or even a car that is aerodynamic -- through the air. As manufacturers have addressed the issues of higher fuel economy and ultimately better overall performance, those concerns have tended to drive cars towards a similar profile.

And whenever a manufacturer brings out a compelling design or styling cue, and people and the designers like it, it tends to be adopted by other manufacturers, which also drives some sameness. Styling is important, and people care about styling. Buying a car is still an emotional decision, and at the end of the day, you've got to live with it.

GMJ: As a former Toyota executive, what do you think makes Toyota different from other automotive manufacturers?

Bergsteinsson: Fifty or so years ago, Toyota was a little Japanese car company with a modest presence in Japan and no global reach. General Motors was the biggest car company in the world, and it dominated the market. Now, fifty years later, just this year, for the first time ever over the first quarter, Toyota outsold General Motors to become the biggest car company in the world. I fully expect that that lead will sustain itself through the balance of the year, so when we conclude 2007, Toyota will have emerged as the largest car company in the world.

How did this happen? It happened because of the Toyota culture. The culture of Toyota is captured in a set of principles called the Toyota Way. And it's built on the twin pillars of "Respect for People" and "Continuous Improvement." And in my view, the more important of those two pillars, and the one that underpins Toyota's culture, is the respect pillar.

GMJ: What does this mean for customers?

Bergsteinsson: Before Toyota built cars, it built looms. The company goes back to the late 1800s. It started because the founder of the company was developing and patenting looms because he wanted to help his mother, who was a weaver, with a better machine to improve her life. Toyota still approaches its business from the perspective that we're here to serve the needs of society. Making money is certainly nice, even essential over time, but we're here to serve the needs of society by delivering superior products and meeting customer needs.

Because of this cultural underpinning called the Toyota Way, Toyota has kept a dogged focus on understanding and addressing the needs of its customers. Now, companies have to be sensitive to other stakeholders -- employees, business partners, the communities in which they live, and the shareholders -- but at Toyota, ultimately the focus is on the customer. And so in the first quarter of 2007, not only did Toyota pass General Motors, but its market capitalization was also twelve times that of General Motors. So it's been a successful formula.

People used to say Toyota's success was just because of Japan, Inc., but that's not true. Honda, like Toyota, remains a successful and independent car company. But if you look over the last thirty years, the rest of the Japanese car industry has not fared as well, with most of them absorbed or aligned with other manufacturers.

I think executive compensation, especially in some underperforming companies, is an outrage. It's so short term.

So Toyota's success is not just because it's a Japanese company; it thrives because of its unique culture.

GMJ: And not coincidentally, over the last thirty years, nervous American car companies have been trying to install "Japanese management techniques." What didn't they do right?

Bergsteinsson: Toyota is a recognized leader in manufacturing, based on the vaunted TPS [Toyota Production System]. The TPS is a manifestation of the Toyota Way, and it's certainly one area in which people see the phenomenon of continuous improvement being applied in a highly rigorous way.

The reason companies fail at taking these principles from Toyota and implementing them in their business is they ignore or don't address the cultural underpinning, or the respect pillar. If the respect pillar isn't in place -- if you don't have a culture where associates are respected, business partners are respected, and customers are respected -- the tools won't work. The problem comes when companies take the tools and trappings and ignore the culture -- and culture is tremendously difficult to change in companies.

Fortunately, Toyota built this culture at its outset when it transitioned from making looms to making cars in the late 1930s. Toyota barely survived World War II, almost went bankrupt in 1950, but always maintained that culture, always maintained that focus on the customer. And those same cultural principles were reflected in the launch of Lexus.

GMJ: You not only worked for 36 years in one of the most admired businesses in the world, you were a leader in it. Do you think it's possible to transplant the Toyota culture?

Bergsteinsson: I think it's a challenge, but yes, it can be done. You know, leaders have to understand it, they have to recognize it, they've got to doggedly pursue it, and it can't just be talk. You have to deliver the goods. Companies can do it, but it takes a firm commitment -- and time.

I do, however, sympathize with executives in U.S. companies. This might be controversial, but to the extent that executives believe in balanced stakeholder value -- well, Toyota would argue that there's one overriding stakeholder, and that's the customer. That's who they really have to concentrate on. Unfortunately, too many executives in U.S. corporations would say, "Oh yeah, we believe in balanced stakeholder value, but at the end of the day, the stakeholder that's most important to me is the shareholder." And you see that reflected in how executive compensation is structured. What does your company compensate its executives for? Does it compensate them for reliably delighting customers, or does it compensate them for delivering stock performance over the short term?

I think executive compensation, especially in some underperforming companies, is an outrage. It's myopic. It's so short term. Toyota would say the customer comes first, the dealers and our suppliers come second, and we come third. I was running the Lexus division when we were on track to become the number-one luxury brand in North America, and the press would say to me, "Aren't you chasing that number-one title? Aren't you excited about beating somebody else?" And I'd say, "It's not what we focus on. We really focus on taking care of the customer."

If companies focus on taking care of the customer, results will come over time, and they'll sell cars, they'll realize profit, and so on. But that formula for success takes a long-term view that stockholders are not always willing to offer U.S. executives, and that's a problem.

GMJ: If you could have any car ever made, what would it be?

Bergsteinsson: I've actually owned some great cars. Right now, my daily drive is a Lexus LS 460L. In addition, I have a pair of 1932 Ford street rods. One is a traditional black two-door sedan; the other is a somewhat outrageous Lexus-powered roadster. I also have a Ferrari 550 Maranello.

The car I covet most -- I think it would be a late 1930s Alfa Romeo 8C 2900. At the top of the list of second choices would probably be an early 60s Ferrari 250 SWB. Now all I need is to win the lottery.

-- Interviewed by Jennifer Robison

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