The news has been replete with examples of companies that have put financial performance ahead of the other three balanced scorecard perspectives. Three examples are the collapse of the financial market, the collapse of the Detroit auto industry and the lapse in quality control by Toyota that resulted in product recalls, property damage and personal injury. Toyota’s troubles are the most striking because the loss of quality control indicates that a major internal transition had occurred. This shift signals that Toyota moved away from its historical roots – a company steeped in the cultural practices of a disciplined society – to become a company whose public behavior smacks of dishonesty at a minimum and at its worse of self-protection steeped in self-interests. The evidence suggests that their desire to maximize profitability trumped their historical commitment to their customers, their dedication to operational excellence, their attention to quality and their zest for the continuous growth and development of their employees. The rush to greater profits resulted in an imbalance in the company’s historical priorities.

Since 1961, employee accountability and high quality standards were the hallmark of Toyota’s Total Quality Control manufacturing philosophy.  This philosophy exemplified a balance between the four perspectives of the balanced scorecard long before the concept was developed. The Toyota system employed quality circles that encouraged team members to be actively engaged in ensuring quality control reflective of the business perspective. In addition, they sought and used employee input while striving for constant improvement reflective of the learning and growth perspective.  They also emphasized that not only were the end buyers customers to whom the company owed the highest quality product, but that each preceding chain of the production line was a customer of the next as well reflective of the customer perspective. The quality circles emphasized teamwork, shared accountability, planning and a commitment to excellence that produced a suburb product reflective of the business perspective. Their high quality product fostered remarkable growth reflective of the financial perspective. However, growth in global sales began to outpace their ability to train their workers.  The emphasis on sales expansion seemed to overshadow the historical balance of the company’s focus.

As recently as 2006, Toyota’s use of the principles of W. Edwards Deming was being touted in the news. At the same time, Toyota was being warned to avoid the Deming’s Seven Deadly Sins, particularly the emphasis on short-term profits: tantamount to a disproportionate focus on the financial perspective. Toyota’s historical emphasis on research and development may have prevented the performance flaws that lead to the current quality problem. However, because of the increasing emphasis on sales expansion, development times began to be shortened in order to get more vehicles into production. Even if Toyota did not totally abandon their founding principles, as the balance shifted toward the financial outcomes, the disproportionate focus on revenues had a devastating effect on the company’s ability to sustain that balance and to prevent an erosion of the balance that had catapulted them to success.  The recent announcement from the leadership of Toyota that the company would become a “small Toyota” that would return their focus to quality and trained employees is a recognition that the critical balance had been upset. None-the-less, in the short run, their customer loyalty is being severely tested and investors are being advised to avoid Toyota stock until the affect of the problems can be assessed.