Toyota's internal inertia stifles digital transformation effort

Japan Times

5 days ago

Inside Toyota, a group of employees are worried about the company's future in an era when a car's software matters just as much as its sheet metal.
The world's biggest automaker is known for churning out reliable cars like clockwork, but it's been struggling to keep up with Elon Musk's Tesla, China's BYD and other front-runners in the industry's shift toward electric vehicles (EVs) with sophisticated software.
A somewhat obscure Toyota business unit called the Digital Transformation Promotion Department aims to change that. Established four years ago at the behest of then-Chief Executive Officer and now Chairman Akio Toyoda, the little known group's mandate is to bring the carmaker up to speed by modernizing it from within.
The division's rank-and-file members are drawn from a wide cross-section of the corporate flow chart — everyone from R&D technicians to blue collar mechanics on factory floors. They all share a broad vision to introduce a more digitized future to a company with a stubbornly analog culture.
While they've managed to foster some changes, Toyota's core competency remains very much in hardware — with one foot in the world of EVs and its other planted in gas-powered cars. That cautious approach has been key to the Japanese automaker's success so far. Yet it's also a source of frustration for some inside and outside the company who are pushing for quicker progress.
"Toyota sees the importance of software, but it's still slow,' said Kani Munidasa, chief executive officer of Code Crysalis, a Tokyo-based startup that's working with Toyota to put workers through Silicon Valley-style coding boot camps.
Lukewarm commitment
Some advocates for a software-led rethink at Toyota have grown disillusioned by what they see as a lukewarm commitment to reform from within, according to people familiar with the matter. They point to a recent decision to fold the Digital Transformation Promotion Department into a larger business unit, threatening to short-circuit its mission as a change agent.
The division, which previously reported directly to Chief Executive Officer Koji Sato, was absorbed by the Digital Information and Communication Group "to accelerate the internal promotion of digital transformation,' Toyota said in a statement.
"We aim to create new value and transform business by accelerating collaboration among the various infrastructures and the use of AI,' it said.
In some ways a similar fate befell Toyota's effort to create a digitally focused, quasi-independent subsidiary called Woven. Despite bold ambitions to usher in a "software-first' approach to car manufacturing, in the end Woven was quietly folded back into the corporate mothership in September 2023 after its American executive departed and its portfolio was downsized.
Toyota CEO Koji Sato |
Bloomberg
While Toyota's software team isn't directly involved in the development of the cars it sells, they've undertaken a number of projects focused on the company itself.
That includes creating a database to keep track of the company's fleet of test cars, overhauling a system employees use to apply for time off, replacing white boards with touch screens on factory floors and deploying robots to deliver medicine inside Toyota's 527-bed company hospital in Aichi Prefecture, according to people familiar with the matter.
Another project involved extending access for remote workers to computer assisted design software using a virtual desktop infrastructure in partnership with Nvidia.
"Moving forward, our plan is to roll out similar systems not only to Toyota Motor but also to Toyota group companies,' Masanobu Takahisa, a Digital Transformation project general manager, was quoted as saying in a 2021 press release about the campaign.
Those efforts might not be transformative, but they're notable in a company where scissors are banned in the office out of an abundance of safety-minded precaution, and erasable billboards are still used to keep employees informed at factories.
Looming 'digital cliff'
Toyota isn't unique among Japanese companies. While the country dominates in some high-tech fields such as industrial robots, its business culture is known for clinging to fax machines and other bygone technologies. The government in Tokyo has warned about failing to surmount what it terms a "digital cliff' separating Japan from other advanced economies.
In March 2021, sitting across from union members during the final round of annual wage negotiations, Toyoda, scion of the founding family and then CEO, said he wanted to break down internal information silos and put the automaker's digital innovation on par with top global companies within three years.
"Inside Toyota, it's still the case that only people 'in the know' are considered valuable, and that knowledge only belongs to a small group,' he said. "By moving forward with our digital transformation, we can rid ourselves of that inequity and build an environment where it's easier for everyone to focus on their work.'
The carmaker based in Toyota, Aichi Prefecture, hatched the Digital Transformation division to heed that call with a team of innovative minds looking to break down antiquated systems and practices. The idea was that, if all went well, that reform agenda would rub off on other parts of the company, boosting resiliency and productivity.
But the progress has been piecemeal and the division is far from achieving its long-term goals, the people familiar with the matter said.
Former employees who spoke anonymously described a workplace bound by conformity, with a paternalistic bureaucracy that values harmony over new ideas. One ex-employee joined Toyota because they were interested in autonomous driving, but instead felt trapped for several years doing quality control on mundane electronic parts.
Toyota's global success — its record as the world's biggest automaker for five consecutive years and its status as Japan's biggest and most important company — has arguably created a self-enforcing inertia. Talk among employees of transferring or quitting usually triggered the same reaction: Why would anyone want to leave?
It's not the only legacy carmaker struggling to adapt to modern technology. Volkswagen's Cariad software unit has been downsized following glitches and delays, while Ford recently downgraded its next-generation advanced software project known as FNV4 by merging it with an existing architecture platform.
That speaks to a larger issue involving the industry's ability to innovate fast enough to compete with the likes of Tesla and China's Xiaomi as well as Big Tech, which has moved aggressively into automotive dashboards with popular features such as Apple's CarPlay and Alphabet's Google Android operating system.
Reinvention won't come easy for established automakers, said John Murphy, a senior automotive analyst at Bank of America. "It goes into structures, platforms, technology — sort of the whole integrated operating system of a vehicle, I think, needs to be done differently,' he said. "It's an uphill battle.'