Since Toyota announced the closure of its Melbourne factory in 2014, the morale among the company’s manufacturing employees has held strong. Responses to the staff survey saw the number of positive answers to 84 per cent of the questions actually going up during the year after the closure was announced. And the percentage of employees prepared to go beyond their normal job requirements has risen to 71 per cent even though it was already well above industry average levels.

This is a remarkable achievement that demonstrates the effectiveness of Toyota’s “respect for people” principle that is one of the two pillars of the Toyota Way (the other is “continuous improvement”).

When the plant closes in October 2017, ending 30 years of Toyota car production in Victoria, about 2600 people will be laid off.

The Australian company has had almost four years to implement a respectful and orderly transition for employees, suppliers and customers. This lengthy process is unusual compared to the three to 12 months’ lead time many companies employ.

Major transformations

With the whole of Australia’s car industry shutting its manufacturing operations by the end of 2017, there will be many displaced from their long-time places of employment: some estimate 70,000 and others estimate more than twice that number when the whole supply chain and support industries are included.

For the three car manufacturers, Ford, GM Holden and Toyota, operating structures and staff are going through major transformations.

The Melbourne facility produces over 90,000 Camry and Aurion vehicles each year, with two-thirds of those being exported to Middle East markets. Toyota decided to transition out of local manufacturing principally because of high local costs and the high Australian dollar, low local vehicle volumes, and because the Australian supply chain of components is fragmented.

Toyota has arguably been the world’s most successful automotive company, especially in mass markets, with sales of 9 million vehicles a year. VW and GM sell similar numbers of vehicles yet Toyota’s market capitalisation is more than VW, GM and Ford added together.

The announcement of Toyota’s closure of its Australian manufacturing operations meant the Toyota Way principles had to be adapted and applied to these new circumstances.

For 30 years, Toyota has grown globally and a major plant closure is a new experience for the company, which has had to put its Toyota Way principles and its leadership to the test.

Limited opportunities

Can you really show respect for people when you’re about to make long-serving employees redundant? Can you expect them to continue to engage in high levels of continuous improvement under these circumstances?

Toyota began by studying how other companies had downsized and reorganised. When BHP closed its steelworks in Newcastle, NSW, it provided extensive career counselling and some training to staff. Toyota’s workers at Altona had always had lots of training and development opportunities.

Because the manufacturing sector offered limited opportunities, Toyota’s managers focused on the workers’ generic skills that could be deployed into growing sectors of the economy such as health care, aged care, logistics and construction. They found many employees had appetites for such career changes.

Toyota assigned a large budget for training and transitional support activities over four years that will continue until six months after the actual closure. All 4000 employees were asked if they wanted to stay or leave and were encouraged to be proactive in developing a personal transition plan.

An agreement was struck on a package that was be paid to the leavers; the many people I interviewed in my research said it was very fair and generous. In addition, Toyota started two very significant initiatives of upskilling and reskilling.

Employee engagement

The upskilling program was open to the 2500 manufacturing employees directly impacted by the closure and all others. Those who participate get a competency-based qualification that is one capability level higher than their present role requirement.

To a large extent, the upskilling program has helped maintain employee engagement in a closure environment.

The reskilling initiative gave every leaver at Toyota the freedom to nominate a career and industry they wanted to enter post-Toyota. The cost of the training was paid for by the company, with the employee doing the training in their own time.

Twenty-six people wanted to become nurses, so Toyota paid for their university degree. Many wanted to move into healthcare, aged care, construction, logistics and manufacturing. Some engineers are undertaking masters’ degrees and others are training to become a pilot, lawyer, landscape gardeners, truck drivers and forklift truck operators. Many have undertaken small business management courses.

When I asked many of Toyota Australia’s executives about how they can get a return on the expenditure and investment in their leavers, they said it will probably come in the form of the mindset of those who stay plus the market perception of the brand. They point out that it is being done out of principled respect, not just to get a return.

When Toyota releases some 2600 people at the end of the year, other industries and companies will benefit substantially from the capabilities those people bring.

We should heed the leadership and management lessons from the extraordinary things that are happening in Toyota Australia.

Professor Danny Samson works in the department of management and marketing at the University of Melbourne. His research, teaching and consulting work focuses on operations effectiveness, innovation management and strategic decision analysis.

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