Section 4. Responding to the Oil Crisis
Item 3. Improvement of Corporate Structures and the Second Oil Crisis
Following the first oil crisis, which ushered in an era of slow growth, Toyota worked to improve its corporate structures including suppliers. In his New Year's address made in January 1975, President Eiji Toyoda called on all section managers and higher administrators to implement fundamental improvement of corporate structures that had grown accustomed to the rapid growth that had been occurring up until that point.1
The following April, President Toyoda made the following request to suppliers at the general conference of the Tokai Kyohokai, a voluntary organization of parts suppliers.
Today, it is necessary to implement various activities including emissions controls and cost-cutting measures in order to secure international competitiveness during a time of slow growth, which is completely different from the rapid growth that we enjoyed in the past, or even under negative economic growth.
In the past, we tended to approach the solutions to all problems through the lens of expanding volume, but in the future, we need to transform our thinking and comprehensively improve corporate structures so we can maintain operations without relying on volume and make even greater efforts to respond adequately to the even harsher conditions that are expected in the second half of this year.
(Toyota Shimbun (an in-house Japanese-language publication), No. 1090 (April 4, 1975))
The specific target of the management structure reforms was to establish systems within the company and suppliers that could continue business even with annual production of 2 million units.2 For 1977 and later, the lofty targets of establishing management structures that could withstand operations at the 80 percent-level and structures that could generate profits with operations at the 70 percent-level were set.3
In January 1979, improvement of management capabilities and the diligent pursuit of unique technologies were set as priority corporate policies.4 A two-year management capability improvement program was implemented with the department and section managers specifying topics for operational improvement. Compared to the improvements being made at manufacturing sites, increases in the efficiency of management and administrative departments was lagging and the number of managers who had not experienced the Deming Prize screening was increasing, resulting in a rising sense of a need for improvement of the management skills of department and section managers.
Officers were also expected to enhance their own managerial skills by providing guidance to department and section managers. Vice President Shoichiro Toyoda and lower executives for two years listened to every announcement of improvement activities by department managers and deputy managers to gain an understanding of current problems and laterally expand the improvement activities throughout the company.
It was under these circumstances that in November 1978 the United States government announced a broad-ranging dollar-defense program. The dollar, which had been somewhat soft, immediately strengthened, rising to 186 yen per dollar. Later, the yen exchange rate settled and returned to its earlier levels as a result of the cooperative intervention by a number of countries, but the situation rapidly changed in early 1979. In January, the Shah of Iran, the OPEC's second largest oil producer, was exiled and Ayatollah Khomeini, a Sunni Islamic leader returned to Iran in February and announced the formation of a provisional government (the Iranian revolution). Oil prices again rose rapidly, leading to the second oil crisis.
That March, the Cabinet Energy and Resource Saving Countermeasure Conference adopted measures to curtail oil consumption and called for energy-saving measures such as setting office building heating thermostats to 19 ℃ (66 ℉) or lower. At the end of May, gasoline filling stations were required to close on Sundays and holidays in an effort to reduce the use of private vehicles. Measures to restrain oil consumption were proposed at the G7 summit held in Tokyo in June, but the effects were minimal. Oil prices continued to rise, and the posted price of Arabian light (explained in Section 4 Item 1) nearly doubled from 13.30 dollar per barrel at the beginning of the year to 24.00 dollar in November. The global economy came to a standstill and inflation reappeared.