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Toyota in Silicon Valley: Lessons in Supply Chain and Corporate Innovation

Three days, 16 famous Silicon Valley companies and a dozen innovation experts – that’s how Toyota Material Handling (TMH) spent its corporate retreat in 2017. A European subdivision of Toyota Industries and a producer of equipment for logistics, TMH has for many years sent its executives from all over the world to an annual gathering to discuss strategy and the future of the brand.

The three-day executive immersion program we designed for the company was months in the planning so if the executives felt a little overwhelmed at times that meant they were learning, which was exactly the point.

Not that there was anything atypical about such lengthy preparations. As with all our programs we engaged Toyota in a thorough consultation process in order to zoom in on the major “pain points” of its business. Then we built a schedule to provide introductions to the kind of high-technology solutions Silicon Valley is famous for.

This particular trip was for Toyota Material Handling (TMH), a division of the company entirely separate from – though not unrelated to – the Japanese manufacturer’s more well-known carmaking business. Where the latter builds the Priuses, Corollas and Camrys which have become staples of world motoring, the former is concerned with the manufacture and supply of the forklifts and pallet trucks which help get the parts for those vehicles to the production line.  

For us at Silicon Valley Innovation Center (SVIC) that meant putting together a program with an emphasis on finding novel solutions to the typical problems faced by enterprises in the manufacturing sector, namely, cost and time inefficiencies in areas like warehousing and supply chain.

Answers, we knew, would come from technologies like internet of things and blockchain. But apart from visiting companies breaking new ground in these areas we also made sure to mix in sessions on corporate innovation at Google, Amazon and Microsoft. After all, getting access to new technology is the relatively easy part. Actually knowing how to get an organization to embrace that technology and get the most out of it is where the real work begins.

And so, with the schedule finalized and the hotel rooms booked, the Toyota Material Handling team touched down in Silicon Valley.

Internet of Things

The development which today presents the most threats and opportunities to a manufacturer like Toyota Material Handling is Internet of Things, or IoT.  We dedicated a large part of the Japanese enterprise’s time in Silicon Valley to meetings with companies currently using the technology in their operations.

One of the biggest and most advanced users of IoT anywhere in the world today is contract manufacturer Jabil. Touring its production facilities, the Toyota team saw something they could emulate: sensors and data collectors on everything from pallets to machines and a huge control room to go with them where all the collected information is processed. The practical application of all this technology use was made clear through the huge gains in efficiency it has generated for Jabil throughout the manufacturing process.

At Verizon, meanwhile, the emphasis was placed on a parallel aspect of the IoT revolution with a focus on connectivity and 5G mobile broadband. The communications company opened Toyota’s eyes to the huge realm of possibilities 5G will open for IoT and the changes this could bring in everything from supply chain to smart cities. What’s more, the Toyota execs learned how Verizon stays abreast of the latest technology developments by actively buying up and partnering with a range of startups.

That knowledge on the startup scene in the IoT space was expanded further with a visit to Wearable World, an IoT accelerator. The CEO laid out the current state of the industry, with an angel investor also giving a presentation detailing for Toyota Material Handling how the company might make the most of IoT’s potential through investment in startups.

Those learnings came to the fore on day three of the program during a startup showcase, when Toyota met several early stage companies. Roambee, which offers real-time location and condition monitoring for shipments, further deepened the forklift manufacturer’s understanding of IoT’s capabilities.

Corporate Innovation

After IoT, corporate innovation was the next biggest area of exploration for Toyota Material Handling. 

Presentations at Google, Microsoft and Amazon taught Toyota that with the right strategy, even a big organization such as itself can innovate. The three tech giants all touched upon a similar theme: when it comes to not just staying current but even getting ahead of the curve, it is imperative to make a large number of small bets. In fact, as Toyota found out, Amazon, directly or indirectly, has a stake in some 80,000 early-stage companies. For the Toyota executives is was a real revelation; never had they expected “corporate innovation” to require such an active and far-reaching approach.

The secret to fearlessly testing new ideas in short sprints is the enormous amount of data Google accumulates. They measure everything and are able to make predictions based on vast amounts of user behavior data. “Every company in Silicon Valley has this one thing in common: they all have data scientists or software engineers that are making decisions. Silicon Valley is a city run by PhDs and scientists”, elaborates SVIC Innovation Evangelist Christian Lorentzen.

Further lessons were learned on day three with a trip to non-profit research group Institute for the Future. The presentation here made a strong impact, as the director of business development challenged the Toyota team to think about how their positions as executives in the twenty-first century need to evolve in order to stay relevant in a changing business environment. He emphasized the need to be less hierarchical and more in touch with the consumer experience. This reinforced a message which Toyota had heard earlier at Amazon, where they found out that founder Jeff Bezos spends at least one day a month working in the company’s call center.

Toyota’s takeaways from Google, Amazon and Institute for the Future: Use data and customer insights to test new ideas. The ability to learn with a customer and use data analytics teams in an agile business cycle is what distinguishes companies that will continue to compete in the future.

Sharing Economy and Blockchain

With IoT and corporate innovation occupying the majority of the space on Toyota’s agenda, we just had time to squeeze in a few more sectors. Naturally enough, car usage in the sharing economy was an area of interest for the Japanese manufacturer.

To that end we visited Turo, operator of a peer-to-peer carsharing marketplace. The company’s founder opened up to Toyota on what his reasons were for launching the company, in the process providing much-needed insight into the motivation of entrepreneurs and the difficulties they can face when regulatory frameworks don’t keep pace with technology. As the founder recalled, the color of innovation is often “grey” because new markets are being created about which little is known and even less is clear from existing legal structures.

Toyota were also introduced to the world of blockchain and specifically its use cases in combination with IoT to improve supply chain efficiency. This helped the executive team crystallize their thinking on what blockchain truly is and could be, apart from just a buzzword they were hearing more and more often.  Max Fang, a lecturer from the research group Blockchain at Berkley, shared insights from the blockchain world, including that there are currently around 100 startups operating in the blockchain-IoT space focused on coming up with innovative solutions to the kinds of problems faced by a manufacturer like Toyota Material Handling.

Many Innovations to Come

At the end of their three days, the feedback we heard from the Toyota team told us they felt their trip to Silicon Valley had been worthwhile. As the company had stressed to us in the months leading up to their arrival, one of the reasons they wanted to visit the tech hub was to get ideas on how they could rewire their own internal strategies. On that score their immersion program provided plenty of inspiration, not least from the big companies like Google, Microsoft and Amazon, all of which proved that innovation is possible even when operating as a global corporation.

At the other end of the scale Toyota saw how tiny companies, sometimes as small as just a team of developers, can make a big impact and really disrupt the status quo. Connecting these dots together, the executives undersood how their own approach to innovation as a big company would require a more active approach to partnering and investing with startups.

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