Toyotas Organizational Structure

Toyotas Organizational Structure 1. Analyse and comment on how Toyota transformed its organizational structure to become the pinnacle of Japanese innovation, manufacturing quality and industrial strength referred to in the article. The company was established on August 28, 1937. Japanese automaker Toyota (NYSE:TM) is the worlds largest automaker with over 7.567 million vehicles in FY2009  [1]  . Totoytas sells automobiles and its parts in various parts of the world, and has recently forayed into the Chinese , Russian and Indian market. When Toyota set up its headquartes in Hollywood, it was aware that there was a desparate urgency to do something different. Home favourties , the Land Cruiser and the Toyobet had been somewhat of a disaster in the United States. Toyota did exactly that and came up with two if its most revered cars of earlier days the Cambri and the Avalon and then the inimitable Toyota Corona. In the 70s and the 80s Toyota came up with the GT2000 and the cute Corolla. With Crown and Cressida, Toyota established itself as a serious luxury car maker. In April 2002, Toyota adopted the 2010 Global Vision, a vision for meeting mobility needs in a way that respects the environment and all people. Four key themes based on trends seen as developing from 2020 to around 2030 are: Toward a recycle-oriented society Toward the age of IT and ubiquitous networks Toward a mature society (the decline of nationalism and war) Toward motorization on a global scale (societies with little private transport gaining more) These are linked to the pursuit of a new global image for Toyota with four key components: kind to the earth, comfort of life, excitement for the world, and respect for all people  [2]  . In short, Toyota has shown sales growth for over 40 years, at the same time that U.S automakers sales reached a plateau or decreased. Toyotas profit exceeds that of other automakers. Toyotas market capitalization has for years exceeded that of GM, Ford, and Chrysler; and in recent years exceeded that of all three combined.In sales rank, Toyota has become the world leader.  [3]  So what is it about Toyotas organisational structure, production capabilities, and magagement that makes it click. Employee culture The typical Japenense organisation structure can be summarised in two words long term long term longevity and loyalty. The difference between the American organisational set up and the Japanese organisational set up has not blurred to this date and one can easily identify some stark differences. The Japanese organisational set up focuses on long term productivity with innovation, where workers move across different departments and teams in the same organisation to broaden their horizon and pick up a deep insight into the way things work. There are no flashy bonuses or hikes and one gradually works his way through the top learning and labouring in the process. Teams comprise of small numbers and despite the somewhat rigid hierarchical structure there are frequent group planning exercises, aimed at better communication and constant improvement. In Japan, there is a concept known as amae. In the workplace, the boss owes a certain amount of protection to the employee, and the boss assu mes a direct responsibility for the welfare of his employees.  [4]   The employee culture in Toyota is surprisingly far more open and exciting than in some leading western organsations such as GM or Ford. Smaller teams mean that communication is easier and quicker, and decisions can be taken quickly. Employees are encouraged to come up with idea, even if they are aimed at improving the smallest of processes and even if its not in line with what the group head thinks. Toyota across the world is split into hundreds of small innovation teams. Toyota trains its production-line employees on statistical control and process improvement techniques and makes it their responsibility to develop operational innovations . Toyota invests significant funds in training employees on these tools and provides them with the resources to utilize them. The importance of front-line employees generating ideas based on local first-hand experience is reflected in what the Toyota Production System calls the gemba attitude (literally, the actual place) . In the Toyota culture, i nnovations that truly meet customer needs can best be developed in the actual site where value-added work is being done. It is therefore no surprise that more than 700,000 improvement suggestions were submitted by Toyotas employees out of which 99% were implemented and there is an average of over 10 improvement suggestions per employee per year. The Toyota Production Sytem Toyotas Global Competitive Advantage Toyotas success are largely both on a domestic level and internationally is often attributed to its core corporate ethos , developed, improved enhanced over time and reflected in what has come to be known as the Toyota Production system. The system depends in part on a human resources management policy that stimulates employee creativity and loyalty but also on a highly efficient network of suppliers and components manufacturers.  [5]   Some of the key factors involved are : The Five Ss refer to the five dimensions of of workplace optimization: Seiri (Sort), Seiton (Set in order), Seiso (Shine), Seiketsu (Standardize), and Shitsuke (Sustain). The 5S Program defines the steps that are used to make all work spaces efficient and productive, help people share work stations, reduce time looking for needed tools and improve the work environment. Sort: Sort out unneeded items Straighten: Have a place for everything Shine: Keep the area clean Standardize: Create rules and standard operating procedures Sustain: Maintain the system and continue to improve it  [6]   The TPS is based in 7 principles  [7]  : Reduced Setup Times  [8]  : All setup practices are wasteful because they add no value and they tie up labor and equipment. By organizing procedures, using carts, and training workers to do their own setups, Toyota managed to slash setup times from months to hours and sometimes even minutes.  [9]   Small-Lot Production  [10]  : Producing things in large batches results in huge setup costs, high capital cost of high-speed dedicated machinery, larger inventories, extended lead times, and larger defect costs. Because Toyota has found the way to make setups short and inexpensive, it became possible for them to economically produce a variety of things in small quantities. Quality at the Source  [11]  : To eliminate product defects, they must be discovered and corrected as soon as possible. Since workers are at the best position to discover a defect and to immediately fix it, they are assigned this responsibility. If a defect cannot be readily fixed, any worker can halt the entire line by pulling a cord (called Jidoka). Equipment Maintenance  [12]  : Toyota operators are assigned primary responsibility for basic maintenance since they are in the best position to defect signs of malfunctions. Maintenance specialists diagnose and fix only complex problems, improve the performance of equipment, and train workers in maintenance. Pull Production:  [13]   To reduce inventory holding costs and lead times, Toyota developed the pull production method wherein the quantity of work performed at each stage of the process is dictated solely by demand for materials from the immediate next stage. The Kamban scheme coordinates the flow of small containers of materials between stages. This is where the term Just-in-Time (JIT) originated. Supplier Involvement  [14]  : Toyota treats its suppliers as partners, as integral elements of Toyota Production System (TPS). Suppliers are trained in ways to reduce setup times, inventories, defects, machine breakdowns etc., and take responsibility to deliver their best possible parts. Focus on process management  [15]   The Toyota Motor Company has branches all over the world. Each division of the company is organized in almost the same way. They each have a director, sub-director, chief, and then the stuff. The stuff includes all the people that work together as a team for a particular purpose. These teams work towards research and development, production, or finance for the company. In Japan, people work for a particular company for their entire life and work their way up the organizational structure. The Toyota Group has three main parts: Toyota, Daihatsu, and Hino. The Toyota Group went on the New York Stock Exchange in 1999. Not only do they work together to produce automobiles, the company has expanded into other markets including auto-financing, ITS, telematics, housing, internet (Gazoo), and bio-technology. Toyota has a very good organizational structure. However, they need to focus on the culture of the organization. Each group in each country has a different way of conducting business in order to adapt to the culture in that country. Toyota has an advantage in Japan because it is one of the largest automobile companies in the country and in the world. Japan needs this organization for their economy to continue to be strong. Toyota is also beginning to realize their future potential. The company is looking into new markets (countries) where they can find more people who are willing to work within the strategy they are implementing. Toyota is also leading in helping the environmental opportunities within Japan and other countries. They see the need of a future plan not only for the company but also for the world. Their other future endeavors include expansion of the company, new technological advances, and an educational endeavor with the University of Chicago. Many of these opportunities are being organized by the U.S. Group, but each country has their own ideas. Innovation Delegation of Decisions to Innovation Teams Despite best intentions, if all important decisions in the innovation process are made dependent on (top) management ´s agreement a time delay will result.Therefore decisions need to be delegated to the innovation team in order to avoid these delays and enable Fast Innovation. The consent of (top) management is in this case only required at the milestones or gates of the innovation process. The members of the innovation team should be available to the team with 100% of their time in order to get the innovations to market as quickly as possible. Integration of RD into the Business Units Toyota has ensured that there is integration of the majority of RD into the business units which makes innovation management more effective. It fosters the collaboration with the other departments of the business unit and the orientation towards the customer (customer pull) in lieu of an exclusive focus on the technology (technology push). Furthermore it improves the preconditions for Fast Innovation. E.g., Last year, Toyota launched its Value Innovation strategy. Rather than work with suppliers just to cut costs of individual parts, it is delving further back in the design process to find savings spanning entire vehicle  [16]   Toyota was the first to recognize the chances of new low-cost designs as an enabler to new materials, methods of production and design principles. Such cost innovations will become a major RD focus driving the industry beyond 2015.  [17]   Long-term planning. Instead of responding to trends, fads, and quarterly numbers, Toyota looks far down the road and tries to develop products that will resonate for a long time. The best example is the Prius hybrid-which debuted eight years ago, when a gallon of gas in the United States cost a mere $1.50, and the average car buyer cared more about cup holders than gas mileage. The iconic hybrid, of course, turned out to be a breakthrough vehicle, and Toyota sold its 1 millionth Prius this month. With gas prices and fuel economy now a top concern, the Prius has helped Toyota take a commanding lead in hybrid technology  [18]  . E.g. Toyota tends to the localization of the production using plants situated in different countries as the suppliers of the companys production to the local market.  [19]   Central Innovation Teams Toyota has, as an alternative organizational structure of innovation management central innovation teams are established at the divisional level, and they will report to the head of the division, and not to to the head of an individual category, product group or brand. Such central teams are mainly utilized in cases when the motivation and resources of individual divisions, categories, product groups or brands are insufficient in order to get the respective innovation to market with maximum effort and at maximum speed despite the daily pressure and distraction from the established operation. Central Innovation Funds The innovation projects which later will be led by central innovation teams in most cases need a special budget to get funded because the divisions shy away from making funds available given the typically high risk of such projects. Without a central innovation fund these innovations would not be launched fast, if they would get to market at all. Fast Innovation would be impossible. External Interface for Open Innovation Open Innovation is a central policy of innovation management in order to get innovations to marketplace more swiftly. Toyota has in the past, directed outdoor solutions and ideas into the company. E.g. Toyota adopted the practice of using the same part across a range of models saving vast sums of money but exposing itself to the risk that even a small defect could cause global mayhem for the company.  [20]   2. Analyse and critically evaluate the extent to which Toyota achieves a fit between its strategy, the developments taking place in its external environment and its internal resources and capabilities. Toyotas internal resources and capabilities: Simply put, strategic fit may be defined as alignment between internal capability and external opportunity  [21]  . Totyota internal resources and capabilities In the 1940s and the 19 Toyota was much smaller in size and production than its American Counterparts. This meant two things. Firstly, Toyota could not enjoy economies of scale so as to manufacture as many types of equipment as inexpensively as possible and secondly, it has to find a way to establish itself in the American market. Thirdly Toyota had little or no marketing knowledge outside its domestic market. Toyota had yet to breed loyal and committed workers, who would strive to achieve innovation and cost reduction. Post world war Toyotas production was essentially limited to trucks with military applications and it was essential that Toyota enters the consumer market as soon as possible. Resources : Toyota was never particularly short of cash, and there was ample government support given to Toyota in the initial years, albeit with some terms and conditions. However domestic demand in Japan was not high and production on large scale was neither feasible not necessary. Challenges Inability to predict recession Toyota has made significant profits in the past three decades and has with ease outdone its competitors such as GM motors, Honda and Ford. However, Toyota had steeply hiked its production beginning from 2000 in order to adequately and fully capitalize on its growing brand reputation and increasing demand in North America and Western Europe. Since recession hit 2007-2008 Toyota has therefore been struggling with a problem of over-production and fixed costs. The silver lining has however been the implementation on legislation on hybrid technology, which has offered tax benegoits to consumers who opt for hybrid cars ( a core strength of Toyota) and the growing demand for environmental friendly green cars another unchallenged domain of Toyota. The good news was that some of the Toyota brands, like Prius, continued to perform well despite recession and earned it strong revenues during such tough times  [22]  . Poor performance of financial services: Toyotas diversified operations include financial services, telecommunications, prefabricated housing and leisure boats, with the automotive business accounting for more than 90 % of the companys total sales. These non core areas have particularly suffered in recession with Toyota recording a decline of net profits in the year 2008 and 2009. Fluctuating Exchange Rates Toyota being based in Japan has its profits accounted in the Japanese yen, but its sales are denominated in several different currencies. Frequent and volatile fluctuations in the exchange rate between these currencies and the yen, which has been typical in this recession mean they Toyotas on-the-record profits can significantly affected. Hence dollar-yen exchange rate been 1% lower last year (say 118.5 instead of 120), Toyotas profits would have fallen by 5 billion yen ($42 million)  [23]  . Toyota often hedges its exchange rate risk by arranging currency swaps and purchasing futures, but these operations are costly and threaten to cut into the bottom line.  [24]  In the long run, these effects are even more exacerbated: as the dollar depreciates against the yen, American sales are worth less to Toyota, and Toyotas are more expensive to consumers, so they buy fewer  [25]  . Thus profit per revenue and absolute revenue both fall from depreciating exchange rates. While Toy ota can hedge out the risk to its profit margins, it cannot easily manage the risk from falling demand. Exchange rates have become a sensitive subject among US legislators, who allege that Japan has kept the yen undervalued to stimulate sales  [26]   Loss of brand reputation and profitability in light of recall of cars.http://cdn.wikinvest.com/i/px.gif Toyotas has had to recall some of its show stealer cars such as the Camry, Corolla, Prius and some Lexus vehicles which have enormously damaged Toyotas image and brand, which was once considered not only to be reasonable but also to be safe.Toyotas mishandling of the problem, its passing the buck attitude, lack of effective communication to investors and consumers alike and most importantly its technical shortcoming of having failed to detect the real cause of the unintended acceleration have severely compromised its image. In November 2009, the company recalled 3.8 million vehicles on the same line  [27]  . Toyota has been embroiled in massively negative mass media coverage, NHTSA scrutiny, and US congressional hearings, law suits in several jurisdictions and an estimated loss of US$ 3 million worldwide.  [28]  . Obviously, its competitors have fully capitalised on this opportunity with Hyundai and Ford promptly offering $1000 rebates to owners of Toyota, Lexus and Scion bra nds in change for new Ford and Hyundai vehicles  [29]  . In the short-term, the recent recall crisis is estimated to cost Toyota over $3 billion USD worldwide.[37] As of February 2010, over 30 lawsuits have been filed against Toyota, adding onto further litigation costs. A total of 9 million vehicles have been recalled by Toyota worldwide, and each US Toyota dealer is estimated to lose approximately $2 million a month in revenue totaling $2.47 billion USD around the country.[38] Rising prices of essential commodities Global prices of various commodities trends are vital to Toyotas profitability because they determine to a large extend the ultimate selling price of the car. Rising Gasolene prices me are bound toi effect the long term ownership cost of cars as well as its resale value. The prices for steel and aluminium have been on a rise since the recession and both being a fixed cost are causes of concern for Toyota. Through mid-2008 oil prices increased dramatically. Consequently, the cost of gasoline doubled inflating the day-to-day cost of car ownership. Since consumers buy cars only infrequently, rising oil prices have only a limited impact on year-to-year car sales, but over time they cut into the industrys sales, and force companies to design more fuel-efficient fleets. Although oil prices have since moderated they will likely remain definitive in the future as the global economy recovers.  [30]   Toyotas response to changing circumstances Adoption of lean production and shift to an economies of scale production. Toyota is (or was at the time) the low cost producer in the industry. Toyota achieved its cost leadership strategy by adopting lean production, careful choice and control of suppliers, efficient distribution, and low servicing costs from a quality product.  [31]  . A few important elements of TPS were that Toyota was able to produce equipments, tools and accessories in small quantities and at a low cost of production. Also, the focus of Toyota remained more on process production rather than automobile architecture. While looks of a car were indeed the determining factor in the 70s and the 80s Toyota was the first to realize the need to produce fuel efficient cars. 2. Diversifying target consumer groups : While Toyota largely concentrated on small, fuel efficient cars it decided to enter the luxury car segment and the hybrid car segment. As of today Toyotas business is divided into three sections namely Tundra, Lexus and Prius. Tundra is Toyotas key product in the truck segment and was launched specifically to challenge the market dominance of Ford and GM in Northern America. Lexus is Toyotas luxury brand, and is one of its fastest selling achievements. Toyotas recent attempts to sell the Lexus brand in China and Japan have also been successful. Prius is Toyotas first hybrid production and has been enormously successful in a decade marked with rising fuel prices and preference for compact designs. Toyota had a definitive advantage when it came to hybrid cars, it being the first to pioneer the technology. This technology was strategically leased to Ford (which might have developed the technology on its own in a matter of a few more months) and m anaged to sustain competition from General Motors. Toyota has however fallen short of producing adequate number of cars in 2009 as a result of which demand dropped by nearly 30%. Since 2000, with moderate success, Toyota has entered Formula One, Nascar, Nascar truck, and Super GT competitions worldwide, thereby challenging European and American producers in an arena they once dominated  [32]   3. Targeting Emerging markets: Toyota capitalised on the demand in up-coming markets before others and has developed numerous manufacturing facilities, distribution networks, and brand reputation. The current recession has brought about a general decline in the demand for cars. The most affected regions include America and Western Europe, where cars are rarely bought but always leased or taken on monthly installments. Toyota has massively expanded its business since the beginning of this decade , a move which has proved to be unprofitable and there is now a strong focus in Toyotra to shift its focus from the American continent to the BRIC (Brazil, Russia, India and China) countries. These countries not onlyn have a strong consumer demand, which has sustained the global crisis, but also advantages of low cost of production, cheap labour and liberalizing of foreign investment laws. Already, because of a decreasing market for its products in Japan, Toyota has also announced that it has plans to boost its sales in China in 2006, one of GMs major foreign markets. In fact, GM sales in China hit new records last year, with the company selling 665,390 vehicles there, a figure that was up 35.2% from the previous year. Toyota plans to overtake GMs by increasing its own sales in the country by 60%. It also says it will surpass its rival in global production this year with 9.2 million vehicles (GM produced a total of 9.12 million vehicles worldwide in 2005).  [33]  In October 2009, Toyota announced that it would begin producing car engines in India to take advantage of the countrys low-cost manufacturing costs. TM will produce these engines through Toyota Kirloskar, a division under Toyota which is 89% owned by TM and 11% owned by Indias Kirloskar group.  [34]  And plans to launch its first car in 2010. Strategic merger and acquisitions: In 1966, Toyota acquired Hino, which helped it build commercial trucks. Hino currently makes a wide variety of heavy trucks and buses, and was involved in designing and/or producing the Tacoma, T100, 4Runner (HiLux Surf), Sequoia, and Tundra  [35]  . In 1967, Toyota took control of Daihatsu but Toyota did not actually buy the whole company until 1999. Daihatsu supplies vehicles and major components to other automakers, and appears to be popular in South America. Denso was spun off of Toyota after World War II; it was once Toyotas electrical component division. It currently is a roughly $26 billion business with over 100,000 employees and over 170 subsidiaries, selling parts to many major automakers including American companies.  [36]  New United Motor Manufacturing, Inc. (NUMMI) was an automobile manufacturing plant in Fremont, California, opened in 1984 and closed in 2010. NUMMI was established at the site of a former GM site that had been closed two years earlier. GM and To yota reopened the factory as a joint venture in 1984 to manufacture vehicles to be sold under both brands.  [37]  All these mergers and acquisitions have helped Toyota either to learn the marketing know how and local knoeledge of a foreign market or have increased its product-process manufacturing capabilities. Focusing on environment friendly cars: Toyota has spent tremendously on RD in relation to environment friendly cars in light of the increasing environmental awareness of consumers and insistence of governments to cut down on emissions. 3. Critically evaluate the recent actions of Toyotas president, Akio Toyoda and the argument put forward in the article that Toyotas problems highlight failings in the Japanese model of corporate governance. What actions would you recommend the board of Toyota pursue in order to recover the companys reputation, with particular regard to how you would respond to the needs of its stakeholders? The term corporare governance refers to institutional practices designed to get optimal performace out of managers.  [38]  In the U.S. and U.K. corporate governance is concerned with ensuring the firm is run in the interests of shareholders and its objective is to create wealth for them. Underlying this view of corporate governance is Adam Smiths notion of the invisible hand of the market that he laid out in his seminal book The Wealth of Nations. If firms maximize the wealth of their shareholders and individuals pursue their own interests then the allocation of resources is efficient in the sense that nobody can be made better off without making somebody else worse off. In this view of the world the role of the firm in society is precisely to create wealth for shareholders. This fundamental idea is embodied in the legal framework in the U.S. and U.K. In these countries managers have a fiduciary (i.e. very strong) duty to act in the interests of shareholders. Japan is perhaps the most extreme example. Instead of focusing on the narrow view that firms should concentrate on creating wealth for their owners, corporate governance has