The perils of growth

The fallout from Toyota’s disastrous product recalls shows no signs of ending.

This morning our time, Toyota president Akio Toyoda appeared before the US Goverment’s House Oversight Committee to make yet another apology for the series of safety and quality problems that have been tied to 39 deaths.

The apology wasn’t exactly news, as Toyota executives have been forced into countless acts of contrition in the last few months.

But there was a big lesson in the reason Toyoda gave for his company’s failings.

“We pursued growth over the speed at which we were able to develop our people and our organisation,” he told the Committee.

As America’s car industry floundered over the last few years, Toyota emerged as the shining light in the car sector – profitable and innovative, here was a company increasing sales and opening new factories in the US as its rivals shut theirs down.

Toyota saw its chance to become the biggest car company in the world and went for it with a slew of new products and new factories. It was particularly successful in winning market share in America, where it was ironically praised for its safety and reliability record.

The decision to chase growth above all else has cost the company dearly and that should be a huge lesson for entrepreneurs.

Growth is great, but it’s got to be sustainable. The quality of your products, the quality of your processes and the quality of your finances (particularly your cashflow and balance sheet) should not be put at risk just because the business plan calls for expansion.

In the last 18 months we’ve seen countless companies brought down because of growth lust, including ABC Learning and MFS. Toyota won’t join them in the corporate graveyard, but it will take years to repair its tattered reputation.