Toyota NA’s Tetsuo Ogawa On Leading: ‘No Such Thing As Perfection’

Let’s face it: it’s a tough time to be an automobile CEO in America. Fast-changing consumer tastes. Labor unrest. Decades-high interest rates. And a battle over the very future of how we’ll power vehicles, with hundreds of billions of dollars at stake. Mary Barra of General Motors is waffling on her electric-vehicle strategy and coping with a debacle in the company’s autonomous-driving unit. Ford’s Jim Farley is backpedaling on his late transition to EVs and still getting his arms around Ford’s quality problems. Stellantis CEO Carlos Tavares is seeing sales declines, frustrated dealers and rebellious suppliers cloud U.S. operations. 

And then there’s Tetsuo “Ted” Ogawa, CEO of Toyota Motor North America. At a time when his peers are struggling and Toyota global Chairman Akio Toyoda faces new pressures on his own tenure, Ogawa has emerged as perhaps the most important CEO in the American auto business. In North America, all other foreign automakers remain junior to Toyota—with its 63,000 employees and 15 plants across the U.S., Canada and Mexico generating approximately $80 billion in annual revs—and he’s beating some of the domestic carmakers too. Whether it’s marketplace performance, consumer trust, employee devotion or supplier fealty, Ogawa has arguably become the industry’s most-watched leader through a mix of consistency, communication and teamwork. In so doing, he’s also become a case study for any CEO looking to grow through the methodical pursuit of excellence.

“He’s excelled at being behind the scenes but getting the team to work and just executing,” says K. Venkatesh Prasad, senior vice president of research and chief innovation officer for the Center for Automotive Research in Ann Arbor, Michigan. Ogawa is “defining the North Star for Toyota. While the world changes, the North Star is what you focus on, and that doesn’t move.”

So who is Ted Ogawa? Start with who he’s not. First, Ogawa isn’t merely the current “game manager” of Toyota’s impressive legacy of achievement in the United States. He’s the first Japanese head of North American operations for the company, a team player—but he’s also putting his own stamp on Toyota’s achievements.

Neither is Ogawa a tyro to the U.S. market and the American auto industry. The 64-year-old Ogawa came to Toyota’s North American headquarters in Plano, Texas, in 2017 after running the parent company’s operations in China for five years and was promoted to CEO in this region, succeeding longtime chief Jim Lentz, in 2019. 

But Ogawa’s roots in the U.S. go back to helping run Toyota’s founding enterprise on this continent: New United Motor Manufacturing, its California-based joint venture with GM. From 1996 to 2001, Ogawa was coordinator of the operation in Fremont, California, that produced small cars for the American market and, more advantageously for Toyota, taught the company how to maneuver and win here.

“Here he was, a relatively small fish compared with the giant behemoth of GM,” says Prasad, who got to know Ogawa in southern California in the early 1980s and has worked for Japanese employers including Ricoh and Mazda. Ogawa “worked through that cloud of uncertainty with the vision to focus on high quality, expectations and reliability and commitment to the customer.”

Toyota is getting a lot of credit these days for a strategy that puts hybrids first—and always has—while rivals falter by focusing on battery-electrics. Under Ogawa, Toyota also surged past Ford Motor for the No. 2 spot in U.S. market share after GM. But Ogawa made his biggest marks through decisions in crucial areas such as sales and dealer relations, corporate organization, supplier relationships and Toyota’s U.S. manufacturing footprint. For example, this year Toyota again topped an annual survey of OEMs’ “working relations” with U.S.-based suppliers. 

 “Toyota clarified their electric-vehicle programs and product cycles more clearly with the supply base, in terms of realizing accountability,” says David Andrea, principal for Plante Moran, the consulting firm that conducts the study. Ogawa “put that in place [despite] needing to serve two masters: the North American operation, where they make all their profits, and Asia-Pacific, where engineering and other decision-making centers are located.”

Ogawa also shaped Toyota’s plans to invest more than $13 billion in a new battery and EV production complex in North Carolina, which will be one of the continent’s biggest such facilities. “They’ve developed a very good brand and have built up a lot of goodwill in the U.S. with the quality of their products,” says Larry Gigerich, past chairman of the Site Selectors Guild. “That carries over. States, communities and regional economic development groups look at them as first-class and that they know what they’re doing.”

So how does Ogawa do it? In a rare interview, Chief Executive asked him to discuss not only the current state of U.S. carmaking but also his leadership style—how he helps a company as large and complex as Toyota continue to grow and progress, with lessons applicable to any CEO. 

His take is as simple to encapsulate as it is difficult to execute: “Our philosophy is there is no such thing as ‘perfection,’ only ‘ever better’ in all we do, and that applies to our management philosophy as well.” The following interview was edited for length and clarity. 

Toyota introduced the Prius hybrid decades ago. Foresight, luck, both?

Electrification is going on. We keep saying the enemy is carbon, how to reduce carbon. We have a multipath strategy. We are not narrowing options from the customer point of view. BEVs [battery-electric vehicles] are one solution, but it takes time, and they’re not the only solution.

Prius was our first hybrid, but now we are doing the sixth or seventh generation of that car. So even hybrids have evolved, and the technology is ongoing. It’s the realistic solution right now for the customer, combining electrification with gas. 

As far as BEVs go, we keep communicating with headquarters in Japan about evolving them, and there’s a big focus on them because they are the last missing piece. We are now trying to do “all of the above.”

You have said you’d rather invest in carbon credits than overinvest in BEV production. What’s your thinking there?

This boils down to customer demand. We don’t want to get ahead of customer needs. If we overproduce BEVs and nobody wants them, we have a real problem. That means the materials for one BEV could have instead produced six plug-in hybrids or 90 hybrids. So if the BEVs are sitting on dealer lots, we, and our customers, lost the opportunity to help reduce carbon as much as possible, as quickly as possible.

Why do you think most of the auto industry seems to have overreacted to the potential for selling BEVs? 

The subject should be the customer. The Biden administration has too much of a focus on BEVs. In this sense, it’s kind of a political dispute. We are much more focused on the people. I don’t deny BEVs are a great solution, but they’re not the only solution. We need to combine a powertrain to fit customer needs with the final target of reducing carbon.

When it comes to the overall electrification of the North American auto industry, where is the market headed as a whole, and how quickly? 

Right now, BEV demand is quite soft, with the BEV sales ratio among new cars at only 8 percent to 9 percent. However, generally it’s growing. My feeling is that by 2030, hybrids will be 10 percent to 20 percent of sales, but BEVs will be 30 percent, and ICE [internal-combustion engine] vehicles will still be 20 percent to 30 percent.

Let’s switch gears to manufacturing: What’s the role now of the famous Toyota Production System, which has been a key to Toyota quality levels?

TPS is important for efficiency and productivity, especially in our manufacturing area, and it’s part of our company philosophy. It is based on respect for people and continuous improvement forever. Historically, our company started from an old looming machine invented by the great-grandfather of our current chairman, Akio [Toyoda], and the philosophy goes back to them.

Currently, we have TPS to support our in-house plants and in other areas. We also have a support center for other industries, not just automotive but others, including restaurants, hospitality, hospitals and furniture.

One element of the Toyota Production System is to first perfect tasks through kaizen, or continuous improvement. Machines can be set up to do things well, but only after humans have perfected the process. It’s a good reminder that even the most automated processes start with a person who knows the right and wrong way to do it after eliminating waste. Any process, in any industry, can be improved with the right mindset, but the minute you think it’s perfect, improvement will stop.  

Talk about maintaining the strong relationships with the suppliers that are so critical for Toyota. How do you do it?

There is a word in Japanese, kizuna. It means the enduring bonds between people and close relationships forged through mutual trust and support. That’s how I describe the partnership with our suppliers. One good example of kizuna occurred during Covid. In April of 2020, a tornado hit one of our supplier’s plants and caused significant damage to their production line. We offered to help with the recovery efforts, and within a week, there were 17 Toyota team members on site helping to get the plant back up and running. We consider our suppliers part of the team, so we didn’t hesitate to help when they needed it. 

In fact, I recently told our suppliers that if they are facing any issues that could impact their ability to meet demand to please let our North American team know immediately so we can work together to find a solution. 

I also told them that we are in this together, and we must be open and honest with each other—with both good news and bad news. Transparency will help us overcome any challenges we may face and allow us to build great products for our customers. I asked them to please keep kizuna in mind at all times. 

How has Toyota been affected by the shortage of manufacturing labor? How are you handling it?

It depends on the region. For example, for our new North Carolina plant, in that area, labor supply is still good. On the other hand, in Alabama or the rest of the South, it’s quite competitive. We need to recognize the regionality. That’s number one.

Number two is the UAW [the United Auto Workers union], which is now targeting non-unionized plants and companies such as Volkswagen, Mercedes-Benz, Toyota, Nissan and so on. Our team members have the right to decide to join the union. However, our preference or our philosophy is that we speak with team members. Our preference is to have direct communication and dialogue with team members, not through some third party. In this sense, we are now communicating with team members every day in every plant. For instance, we are talking about wage and workplace improvements and how to think about team members, overtime, production volume and so on. Many things. Also, we have answered all of team members’ questions. Our preference is not negotiation but collaboration.

Do you see signs that the UAW, or the idea of joining the union, is taking hold in any sense at any of your plants?

Yes, the union is targeting some specific plants, some specific areas to talk with our team members very close by the site. That’s the activity they’re doing in Georgetown, Kentucky, which is our largest plant, and at our [engine] plant in [Troy,] Missouri, where there is a critical shortage of labor.

But we are not stopping as the union does their activities. We are still talking with team members. Sometimes they have a misunderstanding about what the UAW says, like the UAW can do everything for them…. By engaging in honest, two-way communication with our team members about what’s happening in the company, we aim to foster positive morale, which ultimately leads to increased productivity. Working together has provided a history of stable employment and income for our team members.

What should other CEOs learn from how you’ve led Toyota?

I want to laugh. I’m not American, I’m Japanese, and I took over from Jim Lentz, who is American. When Akio preannounced to me that I was [the successor], my first sentence to him was, “Oh, thank you. It’s an honor. However, Akio, I cannot go to the White House by myself. Jim can do that.” 

His answer was, “I’m not asking you to go to the White House by yourself. You have a good team. Your mission is to make those teams even stronger.” So that’s his mission to me. From that day, I’ve been focused on building better teamwork. The truth is that we have a great team, and I trust the leadership team members. That’s the only thing I do.

How do you make that team better?

We recently announced a structure change in the organization. Before, there were five pillars under me: sales, manufacturing, product support, R&D and shared services. But now we are down to two main areas: customer, operations, revenue and production, led by Jack Hollis, and strategy and innovation, led by Chris Reynolds.

My desire is for these two blocks to communicate with each other to think about the whole company today and tomorrow, not just think about their own pillar and their own functions. I encourage those communications. It’s kind of a leadership triangle.

I also have four important strategic functions that could potentially affect Toyota’s reputation, reporting directly to me: compliance and audit, accounting and finance, government affairs and corporate communications—all of which are critical to our company, our culture and our key stakeholders.  

Did the restructure help? How?

Our challenge was familiar: How do we further improve our internal collaboration so we can speed up innovation? It’s something we work on constantly, always making small improvements, but in this case, we took the opportunity to make larger structural changes that will allow us to be more nimble and achieve our goals even faster, because with just two main areas, each group can focus on its priorities, discuss issues with minimal barriers and then make decisions more quickly without waiting for a consensus from others who may not have the complete picture. 

Our goal was simple. In times of uncertainty and an unclear path to the evolution of the auto industry, we wanted to make Toyota more agile, flexible and more competitive in order to propel our company forward and prepare us for the future. So we streamlined the organization, starting at the top. This will help us break down silos and allow for better collaboration and coordination across our entire organization and speed up innovation.

Many say Toyota has achieved a sort of “perfection” in management and business philosophy. How do you, as CEO, keep a good thing like that going?

Our philosophy is there is no such thing as “perfection”—only “ever better” in all we do, and that applies to our management philosophy as well. It takes practice, hard work and listening to our team members, customers, dealers, suppliers and other key stakeholders. 

We apply kaizen to continuously improve everything we do. There are some things that will never change, and that is respect for people and putting our customers first. My goal is to practice genchi genbutsu, or what we call “go and see.” This means going to the source where we may have a challenge and listening. I want to hear and see what the issues are firsthand to gain a better understanding of the situation to help implement change.

I also rely on my leadership team to provide me with transparent feedback and encourage them to do the same—be in touch, listen, collaborate and communicate with all areas of the company. 

In addition, it is important to remain humble and always look at the company as an underdog. This drives us to move faster, remain nimble and, at the same time, think long term about our decisions and how this will impact our dealers and customers. It’s a lot of reflection and focus on doing the right thing.

5 Takeaways

Tetsuo Ogawa outlines five leadership lessons drawn from the core principles of the Japanese business philosophy kaizen:  

• Know your customer. Toyota visits a matrix of owners of a given car model to learn what they like and don’t like.

• Eliminate muda or waste, which includes getting rid of redundancies or anything that doesn’t add value. That was a major reason for the company’s administrative consolidation in Texas in 2017. 

• Go to gemba, meaning move toward the action, or go and see where things are or have taken place. This is why Toyota sends engineers to visit its dealerships, where the sales and service rubber meets the road.

• Empower people. “In fact, when Akio Toyoda first gave me this role, he said, ‘You have a great team, make the team even stronger.’ Since then, I have focused on better teamwork and trusting our executives and team members to do what’s right.”

• Be transparent. At employee meetings, insist on “discussing the good and the bad, headwinds and tailwinds, and talk straight.”