Significant organizational change at Toyota Motor Company
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Published: Mon, 5 Dec 2016
The Toyota Motor Company has always been one of the most popular auto mobile manufacturing companies in the world. They have been in the car manufacturing business since 1937. Kiichiro Toyoda founded the company to manufacture automobiles. TOYOTA MOTOR COMPANY has now secured the position as one of the largest car manufacturing companies in the world. Their success has evolved from the implementation of the Japanese quality and efficiency. Toyota has always designed faster and more reliable vehicles at a more economic price with the result that now TOYOTA MOTOR COMPANY is a far more profitable automobile manufacturer than any other company in the world. In the year 2003, TOYOTA MOTOR COMPANY’s annual profits were $ 8.13 billion; that more than GM, Ford and Chrysler profits combined. Toyota has invented the “Toyota Production System” and the “Just in Time Production” which has been one of the most popular management philosophies in the world. The company believes in continuous improvement and has been in the practice of making significant organizational changes from time to time. (Jeffrey K. Liker, 2005)
The main reason said to be a major factor in the TOYOTA MOTOR COMPANY’s success is that they are continuously bringing new product and features in the market with speed. The most basic of their vehicles is the Corolla whose overall product development and production resulted in only 15 months. One of TOYOTA MOTOR COMPANY’s leading strategies has been to learn from others. They take inspirations from companies like Ford Motor Company, quality gurus and industrial engineers. Also the factor that sets the company apart from its peers is the fact that Toyota Motor Company enjoys cost differentiation factor. They provide the same luxuries and benefits in their vehicle and do so at a lower cost compared to other famous companies. (Morgan, James M. Liker, Jeffery K. 2006).
“We place the highest value on actual implementation and taking action. There are many things one doesn’t understand and therefore, we ask them why don’t you go ahead and take action; try to do something? You realize how little you know and you face your own failures and you simply can correct those failures and redo it again and at the second trial you realize another mistake or another thing that you didn’t like so you can redo it once again. So by constant improvement, or should I say, the improvement based upon action, one can rise to the higher level of practice and knowledge.”
– Fujio Cho, President, Toyota Motor Corporation, 2002 (Ananth Iyer, Sridhar Seshadri, Roy Vasher, 2009).
Some of Toyota’s company principles have been an inspiration to many companies. Some of them are to create awareness of the problems, establish capability to solve the problem, take action protocols, create system awareness at all levels and encourage the ability to teach.
Significant Organizational Changes:
On 1st January, 2010, Toyota announced a significant change in their organizational structure as part of their continuous improvement policy. Toyota has been known to make organizational changes every so often to give the company the competitive edge in the market. These changes vary from management objectives changes to reevaluation of hierarchies in the company. Some of the major changes announced in 2010 are as follows:
For the purpose of increasing efficiency and utilizing company resources prudently, the Business Development Unit and Marine Business Division shall now be renamed to Marine and Unit Business Division. The sales functions shall also be looked after by this unit.
The Purchasing planning department shall now be restructured into the Purchasing Administrative Department and the Global Purchasing Promotion Division and the Body Parts Purchasing Division shall now be updated to the Purchasing Planning Division. The purpose is to consolidate local and foreign administrative functions and work on future project management activities and cost efficiency strategies.
The Advertising and Marketing Division, Japan shall now come under Toyota Marketing Japan Co. Ltd, a new addition to the Toyota Motor Corporation. The idea is to making the market of Japan the focal point of their marketing strategies.
The Sales and Marketing Support Division shall now be incorporated to the Sales Enhancement Department to reinforce marketing strategies and actions.
The Strategic Production Planning Division shall now come under the head of Customer Services Operations Division to strengthen TOYOTA MOTOR COMPANY’s customer services and assure quality benchmarks.
The Tokyo Design Division shall now be called Advanced Design Division to focus more on future technological growths. This division has always been one of the main success factors for TOYOTA MOTOR COMPANY. Toyota has always been known for their new and improved technological initiative at a comparatively lower cost.
(Toyota, , 2009)
Internal and External Drivers:
Every change is driven by certain factors that encourage that change. Some of the internal and external drivers that encouraged this change are as follows:
Some of the External Change Drivers are:
These include the external that is the economic, political or natural change factors that drive a company towards change. They also play a major role in the total productivity level of the company.
Technology is a field where new initiatives are introduced very frequently. For a company to enjoy competitive edge, they need to be constantly on the lookout for ways to keep themselves updated with the latest technological trends and developments. They need to constantly make changes and keep on upgrading themselves. Toyota Motor Corporation has always been one of those companies that believe in continuous change. This gives them a competitive edge over other companies as they are reviewing their systems, processes, strategies and actions on a very frequent basis. The reason for this major organizational change was also to maintain that competitive edge in the market as competition keeps increasing with time.
Interaction and integration between people across the world is getting closer and closer day by day. As the technology advances, distances decrease. For this reason a company needs to keep up with the latest trends of globalization. Globalization was another main driver for the organizational change. The societies are now becoming even more integrated with each other through business and communication. This is the reason why many of TOYOTA MOTOR COMPANY’s divisions which were previously operating on a national level were developed to look after global strategies and developments. This is a difficult task as the consumers of each region are different and have different buying patterns. The task of the company would be to analyze those patterns of each of those companies and then offer product accordingly.
Changes in consumer demands:
Due to recession, there have been a lot of changes in the consumer’s buying behavior patterns. Cost has become a major factor in the consumer buying decisions. Fortunately, Toyota has also opted for cost differentiation and enjoyed a central position in that aspect. Customer satisfaction is also become a major concern nowadays and was a main driver for the change in the organizational structure. In the new strategy, TOYOTA MOTOR COMPANY has focused more on providing quality services for customer satisfaction. This is another major factor is creating brand loyalty and goodwill amongst the customer.
Due to recession, there has been a significant shortage in the resources available. The wisest move for any company is to effectively and efficiently utilize the existing resources instead of bearing the expense and risk of going after new ones. That has also been a major driver in this change. Many companies have also had to let go of a few of their employees to compensate for the lack of production and sales. TOYOTA MOTOR COMPANY made the decision to keep a tight leash on their resources instead and utilize them prudently so that the production and sales side do not have to suffer.
Along with the external, there are also many internal drivers that motivate change in the organization. TOYOTA MOTOR COMPANY has been a company that has always believed in the Kaizen principle that is the continuous change principle. That has resulted in change in their organizational structure and goals frequently. TOYOTA MOTOR COMPANY is always looking for ways through which they can improve themselves. Their inspirations have also come from other successful manufacturing companies like Ford and the aggression to be the best in the world.
Change in technology:
Technology has always been a competition driven field. Every day there are major innovations that change the world of technology and those affected by it forever. For every business den pendent on technology, it is extremely important to keep the process of innovation and progression continuous. For any auto mobile company as well, to enjoy competitive edge in technology is very important, but it is also a difficult task. Toyota Motors Company has surrounded itself with innovative engineers and designers to keep that competitive edge alive. The main internal driver for this change has been to reinforce that aggression towards technological knowledge and aptitude.
Growth is the desired outcome for all companies. Strategies’ are developed, goals are set and action plans are created for this reason only. For any company to grow, change is important. It has been the usual practice of TOYOTA MOTOR COMPANY to change their strategies and development plans every so often to keep the executives, employees and even the customers on their toes. Positive change brings growth for a company. (Jean Phillips, Stanley M. Gully. 2011).
Some of the Management Objectives for the Organization Change are as follows:
TOYOTA MOTOR COMPANY’s highest management objective has always been to create the best possible product for the customer. Some of the objectives to achieve that are as follows:
To utilize the company resources more efficiently and effectively: in this day and age, where the world is suffering from the aftermaths of recession, there has also been a significant change in the buying patterns of the customers. And because of this, the sales side is affected. Because of that labor rates and resource management of the company have to be rethought and re-strategized. In this time of economic trench, it is important for any company to use their existing resources with prudence. This was one of the main objectives for the change.
Keep customer satisfaction as the top priority of the company: Additional focus was given to quality services for customer satisfaction. To achieve that objective a separate division for customer services was developed.
Focus on long term strategic planning activities: the focus was also to develop future strategies’ for growth of the company. This was also one of the main objectives for the change.
Focus on cost reduction strategies: due to the fact that there have been a lot of changes in customer buying behavior and decisions, cost reduction strategies were promoted keeping in mind the effectiveness and efficiency of the product.
More authority given to the executives to make on the spot decisions: TOYOTA MOTOR COMPANY has also bestowed their employees with ample authority to make major decisions on their own according to the situations requirement. That has always been one of their main factors for success. This strategy has also gained the employee trust in the company.
Areas for improvement were identified: The first step in planning for objectives is to identify the areas that need to be improved. These areas can be identified by following past trend and looking for weaknesses. In the previous year, what were the areas that needed attention and improvement? Those are the ideal areas to start from. Another way to identify is to conduct a survey of the market and the company itself and compare results. It will give the manager a very clear idea as to what areas the company is lacking in.
Stretch goals were set for excellence: after the areas where improvement is requirement are identified, goals are set. These are not normal target but stretch goals. Stretch goals are practical yet highly ambitious goals that are clear, compelling and competitive. A company needs to be highly capable and confident to be able to fulfill their stretch goals. TOYOTA MOTOR COMPANY plans their goals on an annual basis and monitors and evaluates them throughout the year.
Performance Dashboards were used: Performance can only be measured if it is continuously monitored and progressed is gauged. Performance Dashboards are management tools used to evaluate the company’s performance and progress on a frequent level. The overall organizational strategies till the level of quality service that is provided to the customers, this all can be gauged by performance dashboards. The reason for its popularity is that they are easy to design and can be implemented with efficiency. More and more companies nowadays are going for performance dashboard with the number increasing every day. a way to ensure the performance dashboards success is to develop it using three simple principles in mind, that is, simplicity, support of senior executives and use of proper measuring metrics that should be constant throughout the whole company.
An intelligence team was deployed: the kind of market a company lives in; it has to face many kinds of turmoil and disorders. They may be political, economic or natural. But they need to be addressed. After the performance dashboards are set, an intelligence team is deployed to foresee the turmoil and uncertainties in the strategies and how they would be affecting the company. This is a very important step for the company as these surprise changes have a very strong affect on the overall performance of the organization and can influence all the departments from the sales of the company to the customer services that they are providing.
Action plan was developed: The last step is to develop an action plan that is based on all of the above factors. This action plan is then broken down to task based activity that is more of the precise goal as to what is expected of each of the individual or department in the company. (Daft, Richards. Marcic, Dorothy. 2003)
A successful not understated idea is to take the employees input and ideas for organizational change. Employees are the base level workers who can give the management a very clear idea of the operations of the company. Taking the employees input will not only result in their trust and loyalty in the company but it can also give the management a new perspective or vision for the company. The management doesn’t have to cater all the employees’ suggestions and they should not be making any commitment in that regard as well but it is always a good organizational move to empower all levels of the employees to increase their productivity and commitment to the company. (Mary B. Holihan 2006)
SWOT analysis for the projects:
Another additional technique that can be applied by the managers is to take make a matrix of strengths, weaknesses, opportunities and threats of any of the project that they wish to undertake. Then those strengths, weaknesses, opportunities and threats should be given weight age according to their expected success in outcome. Those way very concrete facts and figures will be available with the management before deciding on a project or even making organizational changes. (Lawrence G. Fine, 2009)
How Effectively Change was managed?
2010 did not prove to be a good year for Toyota Motor Corporation. Their bad luck started right at the beginning of the year in January 2010 when they started receiving complaints regarding pedal entrapments of their cars. Finally, on 28th January 2010, the situation got so bad that TOYOTA MOTOR COMPANY announced to recall the defaulted vehicles. These recalls costs were almost 5.2 million worth of vehicles. Another 2.3 million worth of vehicles were also recalled due to accelerator problems. Certain models of Lexus and Pontiac were also identified to be faulty and had to be recalled. On 29th January 2010, 1.8 million worth of vehicles were also recalled in Europe. From China 75000 were recalled. TOYOTA MOTOR COMPANY had previously faced these issues last year too and had worked in revamping their manufacturing processes but they did not prove to be successful as they faced the same situation again in 2010. The main vehicles that were identified to be faulty were:
(Autos at msnbc.com, Toyota issues recall for 2.3 million vehicles. 22nd January, 2010)
Effect on Organizational Change:
Due to the recent blows that TOYOTA MOTOR COMPANY has to face in 2010, there was an effect of all this on the organizational change implementation. The transition process of the divisions was completed as decided but the recent tragedies had a strong effect on the production side of the company. Because of this their sales were also affected.
How the Customer Service Division was affected:
Customer services are usually the first place to be impacted as soon as there is a crisis. Same has been the case with Toyota Motor Company. Their customer services received the most prominent blow as the customer services division had to deal with all the customers’ complaints regarding the faulty vehicles.
How the Sales Division was affected:
TOYOTA MOTOR COMPANY’s Sales Division had to endure the biggest blow. According to the annual reports there was a massive drop in the sales in the year 2010 due to the faulty vehicles. The decrease in the sales was almost 39 percent drop as compared to the previous year. The company had to recall almost 10 billion dollars worth of vehicles from all over the world. Since Toyota Motor Company has also had a big influence on the Japanese Economy, even the Yen suffered loss in the market.
How the production division was affected?
Toyota Motor Company’s production was temporarily closed down to check the faults in the vehicles and until the fault was identified and resolved, production of new cars was not resumed. Because the production department was the most involved department during the whole crisis, they had to face the biggest scrutiny and inspection by the world.
How any resistance to change was managed?
TOYOTA MOTOR COMPANY went through a tough year that was 2009 and 2010. Besides having difficulty with the change in consumer behavior patterns and dealing with the economic trench, the company also had to face a massive blow when they had to call back vehicles almost worth of 10 billion dollars altogether all over the world. But despite going through so many recent travesties, TOYOTA MOTOR COMPANY was very optimistic and hopeful in their attitude. According to the company, there may have been mistakes in the past but the New Year’s goal was very clear and that was to have zero defects. By recalling their faulty vehicles, they were able to figure out the defects in the vehicle and make sure that the same mistake was not repeated in the future. There have been many companies that have faced the same issue in the past. For example, Chrysler recalled CTS pedals in Dodge Caliber vehicles in July 2010 after reports of sticking. Ford stopped production of their transit van for a while because the design was similar to the CTS pedal.
According to Akio Toyoda:
“There was a gap between the time that our U.S. colleagues realized that this was an urgent situation and the time we realized here in Japan that there was an urgent situation going on in US. It took three months for us to recognize that this had turned into a crisis. In Japan, unfortunately, until the middle of January we did not think that this was really a crisis.” (Morgan, James M. Liker, Jeffery K.2006)
To what extent the change was successful in meeting its objectives:
The main goal of any business is to make its business sustainable; in other word, to make ample profit. From the very beginning TOYOTA MOTOR COMPANY has never had trouble generating profits due to the fact that they enjoy the advantage of cost differentiation in their product. In the year 2010, they were not successful in meeting their goals.
According to the CNN Business Edition (2011), their Net Income fell from US $ 1.87 billion Dollars to 1.1 Billion Dollars which is a 38.9 percent drop as compared to their performance last year. In the defense of the TOYOTA MOTOR COMPANY executives, they blamed the green cars for their failure and the fact that the government policies had encouraged the manufacture of hybrid cars in the market, resulting in the sharp drop in the sales of other cars.
Need for Further Changes in the future:
There are still a lot of areas that Toyota Motor Company can work on to improve the company. Two of them are mentioned below.
Additional Focus on the Manufacture of the Cars:
TOYOTA MOTOR COMPANY needs to pay extra attention to the manufacturing side of the company in the future. Special Quality team should be introduced to make sure that the car manufacturing process goes through an extensive examination of the parts before the car is assembled. A special testing team should also be introduced to test the car parts so that TOYOTA MOTOR COMPANY does not have to face the same situation again. TOYOTA MOTOR COMPANY is a highly reputable company but the recent tragedies have affected the customers trust in the brand. TOYOTA MOTOR COMPANY will need to put in extra effort to revive their brand goodwill once again.
Initiative to produce more “green cars”:
Since Green Vehicles are the new trend, TOYOTA MOTOR COMPANY should also focus on not only introducing green cars but also in thought in turning their existing cars green. The customers should be given the option of a simple change in engine to turn their cars eco friendly. This will prove to be a wise decision for the company as the government has also been emphasizing on green cars. Introduction of a new and different product will help the company win back their customers confidence in their brand name.
Despite everything that TOYOTA MOTOR COMPANY has endured during the year, there is still a lot of aggression and talent in the company and it will not take them long to bounce to the top of the automobile industry once again. Even now they are in the process of taking new initiative to make sure that they do not have to face the same situation in the future. In my opinion, the market might be able to forgive Toyota Motor Company if they have two bad years in the row. But they might not be so forgiving if the trend continues. If the Toyota Motor Company wants to regain the customers trust and recapture the market, they will certainly have to come up with new organizational strategies to make that possible otherwise, they might even wash away all the hard work in their past too.
Microsoft’s President Bill Gate’s key note address to COMDEX in Las Vegas in November 2000 included the following observation:
“I keep near my hand a copy of My Years with General Motors by Alfred Sloan, the great leader who made GM the world’s famous automaker. The important thing here is how to make organizations endure once the genius entrepreneurs who built them have passed on. In Japan there are two companies that serve as suitable examples: Toyota Motors and Sony. I’m not surprised when a company grows rapidly in the span of five years, but I’m extremely interested in companies that consistently generate superlative results over a twenty or thirty year period. Do they have embedded in them some mechanism for permanence? If they do, then a generational handoff won’t wipe out their talent and their vitality.”
(Hino, Satoshi, 2005)
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