Saturday, February 06, 2010

Success leads to arrogance, which leads to failure

I've been following the recent Toyota saga with a good deal of amazement mixed with curiosity: How bad is this thing going to get? For three decades, Toyota was the world standard for quality. Their manufacturing, planning and training processes were all designed to eliminate the sources of defects and thus build inherently high-quality vehicles. Very few people purchased Toyotas because of how they looked or how exciting they were; most Toyotas are about as exciting as macaroni and cheese. They purchased them because they knew that they were reliable and dependable.

The wheels started falling off for Toyota (no pun intended) a few years ago, when the company's J.D. Power quality scores and Consumer Reports reviews started to decline. According to Business Week, several years ago, Toyota began pressuring parts suppliers to lower the cost of their parts. One unnamed vendor said that his company had been told to decrease the cost of its parts by 10% for each generation of designs. Perhaps Toyota thought that its manufacturing systems would identify and compensate for defects caused by less expensive parts; if so, it was clearly wrong.

What makes this even more embarrassing for Toyota is that the company looks like it's denying responsibility, assigning blame to its vendors and refusing to issue recalls until it's under intense Government pressure. Its head of quality in Japan said that the company had been pressured into issuing the recalls, but its U.S. division said that the recalls had been voluntary. The president of Toyota, Akio Toyoda, had nothing to say publicly about the crisis for weeks until he was cornered at the Economic Forum in Davos, Switzerland by a reporter. Yesterday, he finally made a public apology, but it was carefully worded not to say that Toyota caused the problems and accepts responsibility for them. It was, instead, a statement that the company would improve its processes and focus more on customers.

Just as the stuck accelerator problem seemed to be coming under control, word came out from both the U.S. and Japan that most of Toyota's Prius models may have braking problems that have resulted in accidents. The Japanese Government is calling for a recall in that country, but Toyota has so far refused to comply. Steve Wozniak, Apple's co-founder and the owner of several Priuses, reported that his 2010 Prius has a problem with uncontrollable acceleration when driven with cruise control. Wozniak believed that it was caused by a software bug, but Toyota's response was that there's no problem with the car's software. Then, they reversed course and said that yes, the Prius has software problems, but in the braking system, not the accelerator.

What caused the well-oiled Toyota machine to break down in so many ways will be the subject of case studies and books for years. I think that arrogance played a big part--the cocksure belief that Toyota's processes and systems were so good that they couldn't possibly be the problem. If there was a "problem", it was with customers who drove too fast, or who were incompetent, or who thought that they might score a financial windfall from the company. Toyota had managed to pass General Motors to become the world's largest car company...surely they knew what they were doing.

For many companies, their time of greatest success is also the time when failure becomes most likely. People make two critical errors when they experience success:
  1. They convince themselves that they're solely responsible for their success, and that other factors, such as economic conditions, the failures of competitors or sheer luck, were immaterial.
  2. They believe that their success validates their judgment, and that going forward, they'll have the same success.
Success is always due to a variety of factors, some internal and under our control, and some external and partially or completely out of our control.  A successful strategy under one set of conditions can fail miserably under a different set of conditions. Just ask GM: The company was making record profits from its trucks and SUVs when gasoline was under $2.00 a gallon, but at $4.00 a gallon, demand dried up and all the problems that had accumulated from decades of mismanagement became obvious. It was like a lake drying up to reveal the dead cattle that had wandered in and drowned over the decades. They were there all the time, they just weren't visible.

Success also makes us believe that we're infallible. We look at the great decisions we've made, admire the wonderful policies and procedures that we've put in place, and assume that as long as we keep doing the same things, we'll continue to be successful. However, go back to my previous point. Success is due to both internal and external factors, and we usually have little control over the external ones.

Consider Yahoo. They were by far the most popular site on the Internet. They had expanded from a search engine to a destination covering hundreds of topics with services for consumers and small businesses. Then, in 1998, out came this little two-man operation from graduate students at Stanford who thought that they had a better search engine. Yahoo first ignored, then disparaged this funny little company called Google. Ten years later, Google was the number one site on the Internet, while Yahoo, which had spread its focus so thinly over so many different businesses and market niches that one of its executives referred to it as the "peanut butter" problem, was looking to Microsoft for financial salvation.

When success spawns arrogance, complacency inevitably follows, and the result will be failure. No matter how successful you or your organization are, you don't have all the answers. You don't have control over all the variables that will determine your future success. Even Superman has to contend with Kryptonite.

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