Toyota and Ford Comparative Analysis

Toyota and Ford Comparative Analysis

A Comparative Analysis of the HRM Policies of Toyota and Ford

1. Introduction

The closing decades of the twentieth century and the opening years of the current millennium have been periods of rapid and widespread change in global society. Spurred by opportunities provided by advances in technology, globalisation, and rapid economic growth, major business corporations have been able to spread their activities across continents, increasing their revenues and profits substantially. For business corporations, these increased business opportunities have come along with competitive challenges from new and old companies. Competition almost everywhere has become global in scope; businesses of all types in most countries face real or potential competition from foreign products or services, or from foreign-owned subsidiaries, and domestic firms, which are now foreign-owned.

In the midst of this chaos, the need for top class Human Resource Management, experts believe, has never been as critical as now.

The world of automotive manufacturing, for long the bell weather of industrial production, is also in the midst of sweeping shake-ups. Included in this revolution are extraordinary reorganisations of manufacturing processes, the surfacing of breathtaking technological developments, far reaching realignments of major corporations, numerous mergers, takeovers and pacts among industry members, and the phenomenal rise of Japanese auto makers. Giants like General Motors, Ford, and Chrysler, who once dominated automobile manufacturing, are yielded their markets to much younger Japanese companies like Toyota and Honda. Toyota Motors, a Japanese car maker that commenced operations, in 1937, decades after GM and Ford established themselves, is now the biggest and most profitable car maker in the world.

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This report attempts to analyse the HR policies of Ford and Toyota, comparing their corporate philosophies on the issue, as well as their manifestation in HRM policies and practices at the ground level. Structured in successive sections, the report takes up the broad area of evolution of HR management and the challenges it faces in these days of internationalisation, followed by a comparative analysis of HRM at Ford and Toyota, and thereafter concludes with suggestions on the best possible approach for British expatriates who wish to work in the auto industry in Japan.

2. Human Resource Management

Human Resource management is best viewed as an inclusive term for describing a melange of distinctive approaches to people management. It has evolved from a number of different threads of thought and is most appropriately described as a loose set of theories about people management rather than a focused methodology. Over the years it has evolved and grown with inputs, often contradictory, from psychologists, management experts, corporate managers, industrialists, and business corporations. Theories put forward by Elton Mayo, Maslow, and Herzeberger, as well as practices adopted by Henry Ford, subsequently adopted and modified by Japanese companies, have all played distinctive roles in the evolution of HR Management.

HRM is often also described as a concept with soft and hard forms, which firstly are diametrically opposed along a number of dimensions, and secondly are used to categorise approaches to managing people. Whilst the soft model is associated with the Hawthorne Effect, the Human Relations Movement, and McGregor’s Theory Y perspective, as also with concepts of flexibility, communication, and adaptability, the hard model stresses on the quantitative and business-strategic aspects of managing employees like other factors of production, and where HRM practices are dovetailed into the strategic objectives of organisations. Even as western companies are increasingly using a mix of soft and hard concepts in constructing HRM strategies, Japanese businesses like Toyota have developed a people oriented ‘Z’ theory, which places people at the centre of organisational activity and treats them as the most important organisational resource.

HRM practices worldwide are being continuously shaped by fundamental changes that have occurred and are occurring in society and in the working space. Factors like diverse workforces, double income families, single parenting responsibilities, and teleworking, along with the realities of downsizing, employment-at-will agreements, and globalisation, have created challenges both for management and for organised labour. Decreased commitment between management and employees, temporary relationships, and less emphasis on employer sponsored career growth have not only fundamentally changed assumptions about careers and workforce but also led to anxieties and uncertainty. HRM practices in the UK have again been influenced by David Guest’s six-dimensional HRM model, which includes HRM strategy, HRM practices, HRM outcomes, behaviour outcomes, performance outcomes, and financial outcomes.

Managements of major corporations realise the complexity of current HR challenges and are trying to respond appropriately to optimise workforce effectiveness.

3. Analysis of HRM Policies at Ford and Toyota

Fordism and current HRM Practices at Ford Motors

Much of the origins of Modern Human Resource Management can be traced back to developments in American industry in the early years of the 20^th century, more specifically to the management and production policies initiated by Henry Ford at the Detroit factories of Ford Motors. Organising the workforce of the company on the same footing as other factors of production, Ford was instrumental in introducing the concepts of assembly lines, mass production, and the technical division of labour within companies and their production units. Fordism, as this set of personnel management practices came to be known, was identified with strong hierarchical control, extraordinarily good remuneration, (the five dollar day), and the restriction of workers to particular tasks, both skilled and unskilled.

The emphasis in Fordism was on quantity, not quality, and workers were not allowed to involve themselves in any activity outside their specifically delegated functions. Fordism came to be associated with hierarchical decision making, strict functional specialisation, and tightly defined job design. With assembly line stoppages remaining unattended on purpose until the arrival of specialists, and workers knowing very little outside their specific areas of work, product quality in Fordism was allowed to be subordinated to the need to maintain and increase volumes. Ford Motors also saw the establishment of the first “sociology”, or employee welfare departments, in which managers tried to ensure that domestic problems were not allowed to impinge on assembly line productivity.

Whilst absorption and utilisation of modern technology and design have always been associated with Ford’s way of functioning, the company even today typifies the “production model” of HR, manifested by tough and consistent practice of industrial relations and a clear focus on the continuity of production. HR policies have continued to be hierarchical and the company organisation is known to be multi layered, bureaucratic, and with comparatively low levels of delegation and working independence.

Reacting to the success of Japanese manufacturing practices, Ford initiated changes in its personnel policies in the early 1980s to bring in elements of Japanese HR practice. A number of measures for increasing participation and involvement of workers in Ford UK over the following years led to significant improvement in results. Performance Management imperatives were incorporated into the remuneration structure and problem solving groups, similar to quality circles, now flourish in the company. The company’s Employee Development and Assistance Programme, which allowed for non-work, non-pay benefits for educational needs of employees also met with significant worker approval.

Whilst Ford Motors is trying to make its HR policy more participative and focused on improving workforce skills and abilities, old bureaucratic practices still remain. Industry analysts assert that the company is manager heavy and that individual managers are prone to guard their own turf. It is estimated that Ford has 12 levels between the shop floor worker and the Chief Operating Officer (COO) compared to 4 for Toyota. Despite recent efforts to renew workforce participation, which resulted in thousands of suggestions, even transparently effective recommendations for improving productivity and cutting costs are difficult to introduce because of complex and time consuming procedures and the need for union acquiescence.

Steady inroads made by trade unions over the years also means that all Ford workers are covered by contracts that include not just pay and benefits but also a broad range of shop floor actions. Productivity levels, once the glory of the company, is, at 37 hours per vehicle, much worse than Toyota’s comparative figures of 27 hours. Strikes are not uncommon, not just at Detroit but also at Ford factories in other countries. A recent strike at Ford’s Russian factory led to prolonged work disruption and resulted in across the board wage increases of more than 20% before production restarted.

Whilst selection and recruitment policies at Ford are extremely structured, with salaries and working conditions being governed by union agreements, adding manpower is the last thing on the management’s mind right now. The management, apart from selling off its Jaguar and Land Rover brands, has initiated a process of downsizing its American workforce by 30,000 workers, a proposal that has not been met kindly by its unions, and which is likely to be the company’s chief HR focus in coming months.

The Toyota Phenomenon

Unlike Ford and GM, Toyota has been on a roll, opening factories and recruiting workers even as its American competitors vie with each other to close factories and terminate thousands of workers. The company became the largest car manufacturer in the world in 2007; it earned profits of more than 11 billion US dollars, even as GM moved towards bankruptcy, and Ford continued to fare poorly.

Whilst there is a widespread impression that Toyota’s brilliance arises mainly from its revolutionary HR policies, the truth on the ground is quite different. At the centre of Toyota’s functioning lies the legendary Toyota Production System (TPS); the mother of practices like Kanban, Kaizen, Jidoka, and Shojinka, familiar members of the global management lexicon. All other functions, among them marketing, purchasing, finance, and HR, derive their purpose from the demands of production (and the TPS), which is the centre of the Toyota universe. Purchasing techniques like Just-in-Time and Zero-inventory, for example, dovetail with the needs of the TPS. Similarly HRM practices work towards promoting the four goals of employee integration with the organisation; employee commitment; workforce flexibility and adaptability; and, finally, an emphasis on quality.

Even though Toyota follows the widespread Japanese traditions of uniforms, common parking plots, common canteens and equal treatment of all workers, there is a clear demarcation between managers and workers. Hierarchical levels, even though they are far lesser than at Ford are clear, and responsibilities of all parties spelled out clearly. The HR formula at Toyota is simple and clear; hire the right people, pay them well, take good care of them, and develop them to work in sync with Toyota’s needs. Whilst, the HR policy is easily articulated and extremely simple to understand, its ramifications are complex. The requirements for people are clearly laid down on company websites and the global size of the company has led to substantial local requirement, not just of workers, but also of managers. The company is a preferred employer; recent advertisements for 700 people for a newly opened truck manufacturing unit drew more than 40,000 applications.

The company offers good salary structures and benefits include pension schemes, hospitalisation, disability and life insurance, bonuses, meal vouchers, holidays, relocation support and car rental programme. Trade Union influence at Toyota is significantly lesser than at Ford. Much of this is due to the greater stability of the Trade Unions in Japan than in the US and the UK, as also to their consolidation in recent years into the Rengo; the remuneration structure, which is based on seniority and not directly related to job type also helps in facilitating mobility within the organisation, as well as retraining and redeployment and transfers, thus making layoffs unnecessary. Union problems are however not completely absent. The Toyota plant in India was shut for 14 days in 2006 because of labour violence over union demands for reinstatement of a few dismissed employees.

Toyota has extensive international operations, which makes it necessary for its management to adapt to a range of cultural, economic, and political situations. Whilst shop floor employees are by and large chosen from local people, managerial employees are more international in their constitution, especially in western countries. There are significant numbers of American and British managers in Toyota facilities in the US and UK, some of whom are also sent for long periods to Japan to contribute towards the company’s international strategy.

The most significant features of Toyota HRM practices however lie in the company’s employee training and development policies, which the company has maintained with single minded purpose, even as it has expanded into a vast international group, employing 200,000 workers at 27 overseas locations. It is this belief in employee empowerment that forms the core of Toyota’s quality control processes, evidenced famously by the authority of shop floor employees to stop factory lines when they spot defects. Staff development processes are based upon systemically involving employees in details of production processes, encouraging work rotation, calling for suggestions, facilitating the development of a thoughtful approach, and pushing for the inculcation of Kaizen, the philosophy of continuous improvement in working and personal life.

This continuous aim to improve in a myriad ways, in every department, process and activity, as a systemic and ingrained approach is closely related to the environment of learning that pervades the organisation. Matthew May, in an article in the Wharton Leadership Digest makes a similar point from a different perspective. At Toyota, he emphasizes, the company has a singular, differentiating organizational talent,

(It’s) “Learnership” Learnership at Toyota is not separate from the work; it is the work. By continuously experimenting with how to perform your tasks better, or more creatively or more efficiently, you constantly raise the bar, turning ideas into action – action that creates meaningful change. And that’s what leaders do.

Conclusion

Summary

A broad summarisation of HRM policies at Ford and Toyota leads to the following conclusions

• HRM policies at both Ford and Toyota have evolved over many years. Whereas Ford’s HRM policies still follow the production model, which works towards continuous production, Toyota, which took many of its initial ideas from Ford has now developed a HR methodology that primarily aims to empower the workforce to be proactive, thoughtful, holistic, multi skilled and focused upon continuous improvement. Whilst Ford is making efforts to increase worker participation, its inherent bureaucracies and adversarial relationships with Trade Unions make this task difficult and complex.

• Selection and recruitment policies at Toyota are extremely tough and the success rate of fresh applicants is less than 10%. The enormous number of applicants for jobs with Toyota makes the selection process, which specifically include team building exercises, more difficult. Ford is also very careful about the quality of its employees at all levels. However, the ongoing downsizing programme in the USA, which includes both managers and workers, has effectually led to most of its recruitment efforts occurring in overseas locations, where local constraints play a part in the recruitment process.

• Remuneration and benefits for employees are attractive in both Toyota and Ford and both companies believe in providing for employees through cash and non cash means. Ford is however significantly more constrained in its ability to alter compensation or work practices because of the strength of its Trade Unions. Employees in Toyota are nurtured to make their careers with Toyota. In Ford, whilst the commitment between management and employees is lesser, strong Trade Union agreements make it difficult to terminate workers at will.

• Trade Unions play a far more dominant role in Ford than in Toyota, especially in its Japanese factories. Whilst Toyota insists on a “one recognised union” its expansion into a number of foreign locations in the last ten years has necessitated it having to adjust to different labour laws.

• HRM practices in Toyota are geared towards employee empowerment, which takes place through systemic processes for constant increase in knowledge, job skills, familiarity with other work, as well as for fostering enquiry, scepticism, and participation. Whilst Ford initiated programmes for greater participation in the 1980s, they are not systemic in nature like those of Toyota and are thus unable to achieve fundamental culture changes.

British Expatriates in Japan

In conclusion, UK expatriates planning to work in the automobile industry in Japan, need to keep in mind that the work culture and management practices in Japan are significantly different than those observed in Britain.

It is of course essential to develop fluency in Japanese as working will essentially entail substantial participatory activity with many Japanese managers and workers, many of whom may not be fluent in English.

Working practices will be far less hierarchical, not only through symbolic representations like common uniforms, parking lots, and canteens, but also in the workplace where organisations will be flatter, activity will be under constant scrutiny and discussion, and chances of outside participation will be more. The Japanese also work longer hours and time for rest and recreation will be significantly lesser than what is available in the UK. The period spent in Japan will however provide high quality experience in advanced manufacturing and organisational methods and open up an entirely new vista of learning. Expatriates should expect it to be a great learning experience and prepare accordingly.

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