Columbia Business School case study
THE SECRETS OF LEXUS’ SUCCESS: HOW TOYOTA MOTOR WENT
FROM ZERO TO SIXTY IN THE LUXURY CAR MARKET
https://academiccommons.columbia.edu/download/fedora_content/download/ac:113991/CONTENT/4481.pdf
For its first Lexus, Toyota
basically gave its engineers a
blank check. There were 450
prototype cars developed for
the first Lexus, using 1,400
engineers, and 2,300 technicians.
It was developed over
a six-year period at a cost of a
billion dollars, which is several
times the amount spent on a
usual model in the development
phase and seven times
the number of dedicated
employees. Quite an effort
went into this. Just to put that
into some perspective, the
number of people that Toyota
had assigned to work on the
first Lexus in the 1980s was a
little over half the number that
Boeing assigned to build its
first 777 jumbo jet in the 1990s.
When I had the opportunity
to speak to the Chairman of
Toyota a couple of years ago,
I asked him about expenses.
He said that he told his crew to
spend as much money as they
needed to, but the company
would not be willing to put
a dime into building a maintenance
network in the U.S.
because it expected the car to
never break because of all the
funds that were being put into
it. That was obviously an overstatement,
but it reflected this
kind of thinking. They plowed
all kinds of money into it and
they took apart the competition.
Literally. They went into every
car—the S Class, the 7 Series
BMW—broke them down into
each component and then set
strict parameters for meeting or
exceeding the quality of each
and every part at a far cheaper
cost.
I have talked to several
Americans who were brought
into Toyota at a very early
stage. They remember walking
by these rooms in the Toyota
Development Center and seeing
these BMWs literally laid
out as if a bomb had dropped,
a million parts all over the floor.
Each had detailed diagrams
about how it was made, what it
was made out of, who made it,
and how much it cost to make it.
Another key to their success
was the use of focus groups.
They really wanted to make a
car that suited an existing need
and not the other way around.
Surprisingly, a lot of cars are
still made today by automakers
with hopes of finding an audience
for a car it is building. As
I mentioned, Toyota really went
through to see how the competition
built their cars, but they
also wanted to know what
the drivers thought. They had
extensive use of focus groups,
often times behind a one-way
glass. So you would have
Toyota engineers sitting in a
room behind mirrored glass
taking notes as a moderator,
very often an American, talked
to Jaguar, Mercedes, and BMW
owners and asked what they
liked and did not like about
their cars. From that, hundreds
of people drew detailed lists on
areas that needed improvement.
Toyota needed to produce
a car that would reach a
top speed of 155 mph, faster
than the top-of-the-line BMW 7
Series or Mercedes S Class; a
vehicle that weighed less than
4,000 pounds in order to avoid
a gas-guzzler tax that BMW and
Mercedes owners had to pay;
a car with cabin noise of just 60
decibels at cruising speed of 62
mph; and an aerodynamic ratio
of 0.32, far lower than any of
the German competition and
about the same as sports cars
available at that time.
Extra care was also taken
during the manufacturing of
these vehicles. Once they had
determined what kind of car
they wanted to produce, they
were very careful with how
they produced it. They noted
that a lot of people complained
about the finish and the fit of
top-of-the-line cars like Mercedes
and certainly Cadillacs. They
were very careful to have a
uniform seam for the panels
that were “no greater than a
uniform 7 mm wide.” Even
today, you can go to the factory
in Japan and see guys with
rulers measuring the seam
around the entire circumference
of the car. If there is a car
that has a panel that is jarred or
crooked, it is sent back to be
refitted. It’s that kind of attention
to detail that car buyers
really appreciate. There is even
a place on the assembly line
where workers have to take off
their shoes and put on special
soft-soled slippers when they’re
working on the interior, like
installing the radio or glove
compartment. If that seems
excessive, it probably is. But
I draw your attention to Nissan:
when it built its plant in
This team wanted
to have a detailed
sense of how
people assessed
a car’s value.
—Chester Dawson
6 The Secrets of Lexus’ Success
Mississippi a couple of years
ago, it had big quality problems.
The cars had lots of nicks
and scratches, and management
couldn’t figure out what the
problem was. So they hired a
big consulting agency to come
in and try and figure out what
was going wrong. What they
determined was the problem
was caused by the workers
on the line—their bracelets,
jewelry, and necklaces were
banging up against things and
scratching the car. It was something
as simple as that. Of
course, Nissan then restricted
workers from wearing jewelry
on the line, and the quality
problem disappeared.
