More than anything else, the mindset of leaders will determine the success or failure of any company. This is once again a lesson in how spiritual capital (values and purpose) will determine social capital (internal trust and brand equity), which in turn will determine the entire fate of the enterprise.

The Washington Post today reports Toyota’s own explanation of their failure. By their own account, they put growth ahead of quality. They did not have the sense of urgency to respond to customer feedback. Again, nothing in this condemns shop floor practices, the essence of the Toyota Production System, or “lean”, rather it condemns the priority and actions of senior managers. The culture of lean failed at the top, at the level of strategic thinking and action. This is a lesson in both where lean begins and where it ends.

Dr. Demings used to preach that we must “manage by the facts”, something so apparently obvious, yet something from which the human mind so easily deviates. The rigor of analyzing data to solve quality problems must be practiced at every level of management. The essence of lean is a focus on facts to continuously improve, and here the facts were ignored.

“As Toyota weathers the worst public-relations disaster in its history, its top executives are beginning to acknowledge that the company has majo systemic failings.

“At a news conference in Tokyo this week, Toyota’s vice president for quality control, Shinichi Sasaki, detailed three major weaknesses that the company has diagnosed in its quality monitoring and customer relations since October. That’s when Toyota began its largest-ever round of recalls.

“As described by Sasaki, the problems include:

— Lack of thoroughness in testing new cars and car parts under varying weather conditions, as demonstrated by the recently recalled gas-pedal mechanism that tended to stick more as humidity increased.

— Failures in gathering information from customer complaints, especially in the United States.

— Inability to analyze and act quickly on complaints that have been received.

“Company President Akio Toyoda wrote this week in The Washington Post that the carmaker created by his grandfather “has not lived up to the high standards we set for ourselves.”

“He also acknowledged that global sprawl and lack of quality control, especially in the United States, have weakened the company’s capacity to respond to complaints and share safety information. He noted that when sticking gas pedals were discovered and replaced in Europe, the company did not alert dealers in the United States.

“We failed to connect the dots,” he wrote.

How did Toyota lose its way?

The core reason, according to a number of auto-industry experts, is that the carmaker outgrew its human expertise.

“Toyota cannot develop engineers as fast as they can proliferate new models,” said Jeffrey Liker, a professor of engineering at the University of Michigan and author of five recent books on the virtues of the Toyota Way. “Each engineer is doing more and has more opportunity for error.”

“Before the avalanche of growth, Toyota took about 10 years to train first-class engineers, Liker said.

“These engineers and senior managers had time to absorb company values that gave them an intuitive feel for weighing quality demands against cost concerns — and how to squeeze suppliers on cost without getting inferior parts, said Susan Helper, a professor of economics at Case Western University in Cleveland and an expert on global manufacturing.

“So much of what made the company work well was that each manager was personally trained by a mentor who himself had long experience with the company,” she said. “When the fast expansion came, Toyota was very short of senior managers who were ready to become mentors. My sense is that decisions were made more on numbers, without understanding fully whether those numbers were measuring the right thing.”