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Experiencing Toyota’s Innovation Premium In August, 2003, Toyota became the number three automaker in the US, the first time a non-US manufacturer was in the big three. In its fiscal year 2002, Toyota recorded the largest profit in its history – more than $6 billion in net earnings. For comparison, General Motors, which is almost twice as large, earned $1.8 billion during its fiscal 2002.
This month Toyota will launch the second generation of its hybrid Prius, and it is in the middle of launching a new brand, Scion, targeted at small cars for younger auto purchasers. Here’s a picture….
Toyota gets my vote for the most innovative company of the decade. Its cars are not flashy, but they build in reliable new technology that is both practical and revolutionary. Innovation and operational excellence combine to create great cars and strong financial performance.
The company’s approach to innovation is systematic rather than romantic. Each innovation at Toyota builds on prior work. Its investments in this area have come over decades and make duplication by competitors very difficult. In hybrid technology, for example, a recent Business Week article quotes a US auto executive who estimates that Toyota has at least a 10 year advantage on Ford or General Motors.
Toyota’s hybrid offerings demonstrate the power of changing only a few things at a time. Toyota’s first generation Prius, launched in the US in 2000, looked like an extension of its subcompact Echo. The operating system was different, but the packaging was not.
Now, three years later, Toyota is launching its second generation hybrid Prius, one that incorporates new styling and new technology. As is the case with all of Toyota’s innovations, this next generation builds on Toyota’s prior work.
Because I’m in the market for a new car, I experience the power of Toyota’s innovation personally. I’m looking for a third car for a two driver family. Our current third car is a rusting-out, multi-dented 1996 Honda Civic. I’d like to replace this well-used auto with a new small car that combines both style and economy – one which I’ll use around town and probably drive less than 5000 miles a year.
Price is an important attribute for me, especially given the around-Boston nature of this purchase – I can’t see spending lots of money on a car that will inevitably get dinged and will live outside in a New England winter. I’ve almost decided on the Ford Focus hatchback, which I can buy for under $10,000. This is an impressive automobile, especially at the price – it has a well-powered, ultra-low emissions engine, and comes with a good array of features and styling. I really like it. Here’s a picture:
Toyota is keeping me from buying the Ford. I’m waiting to drive the Prius and the Scion xA. Both of these cars cost thousands more than the Focus – the Prius runs about $25,000 and the Scion about $14,000. The Prius combines second generation hybrid technology with a hatchback and nifty electronics, while the Scion is a competitor to the redesigned Mini.
As I compare automobiles, I’m surprised that the cost differences don’t carry more weight for me. I’m excited and a bit dazzled by Toyota’s new products -- I want to see how good these products will be. As a result, I’m waiting to spend more than twice the cost of a Ford Focus for a car that I haven’t seen yet.
I suspect that Ford doesn’t understand this, and can’t duplicate it. But it is a personal, tangible, and economic embodiment of the premium Toyota gets from its systematic approach to innovation. For More Information:
http://www.biz-architect.com/romantic_products.htm
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