Innovation Agility

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.

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. 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. 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.

Extended Enterprise. Product development for critical components is handled by the long-term suppliers with whom Toyota has invested in innovative capability. 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. 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. The system reveres technical and functional excellence, and nurtures it in every way possible — in part through a strong mentoring system.

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.