Toyota's Management Issues

This report sets to review current management issues at Toyota Automobile Company. It will evaluate the environment in which the company operates as well as analysis of its competitors. It will evaluate decisions that led to the global recall of over ten million of the company’s vehicles around the world. (Will be finished when the report is concluded)

INTRODUCTION

Toyota is the leading auto manufacturer in the world with revenues of JPY 20, 529,570 million ($205,295.7 million) during the financial year ended March 2009. Toyota Motor was established in 1937 as a spin-off from Toyoda Automatic Loom Works, a manufacturer of weaving machinery. The company has its headquarters in Toyota city, Japan, employing about 320,808 people and selling its products in more than 170 countries and regions worldwide. Toyota engages in the design, manufacturing, assembly and sale of passenger cars, minivans, trucks, recreational and sport related vehicles (SVU’s) and related parts and accessories. It also provides financing to dealers and their customers for the purchase or lease of Toyota vehicles which sums up its three Business segments: automotive, financial services and others (developing IT-related products and services through joint efforts with certain telecommunication and information services providers etc).

The report will aims at identifying key managerial issues leading to Toyota’s global recall, evaluating those issues against relevant theories/models and making recommendations for the future. This study is significant not just because it is a management issue but because it is the biggest recall in automotive history. Toyota being the leading auto manufacture in the world, every action and decision they make affects other companies as well as individuals. “For at least two decades Toyota has been the benchmark of manufacturing quality. Not only for automobiles but throughout the manufacturing world, the “Toyota way” (Toyota’s guiding principles) has been a model” (Fischer, 2010). Toyota’s interest in details as well as their unwavering expectation of perfect quality makes this an important management issue worth studying.

ANALYSIS OF BUSINESS ENVIRONMENT

Like every other Business, Toyota operates within a context of an environment, these environments directly and indirectly affects the way Toyota operates and function. The internal environments are made of variables within Toyota’s control. Variables like; its philosophy, structure and factors within the organisation which influence its activities and choices, particularly its employee’s behaviours. Other variables include; Toyota’s leadership style, its culture and mission statements etc.

Philosophies

Toyota philosophies are deeply rooted in the “Toyota way”. Jeffery K. et al (2004) summarized Toyota’s managing principles in a 4P model: philosophy, process, people and problem solving. They argue that the 4Ps form a pyramid, the foundation of which is a long term philosophy that focuses on adding value to customers and society. Thus Toyota philosophy is about pursuit of the most efficient method in manufacturing via a “lean” or “just in time system”, a complete elimination of waste.

Mission statements

Based on the inscription on the company’s website, Toyota aim to enrich society through car making. Their goal is to be good corporate citizens and to constantly win the trust and respect of the international community. Thus their mission statements are; “To sustain profitable growth by providing the best customer experience and dealer support” (http://www.toyota.co.jp/en/vision/message/ ).

2.3 Structure

Toyota has a more centralized management structure, a design that has no autonomy and puts key decision making authority in the hands of the 29 top executive at their headquarters in Japan. The centralized structure did not work well for the company when the recall crisis started in the US; because at the time there was no body with authority to speak or make a decision on behalf of the company. Toyota also has a vertical integrated structure because they own most of their supply chain. They have a structure that screens suppliers for quality and financial capabilities, which is why they own almost all of their supply chain. In order to facilitates the use of highly specialize staffs; Toyota is design to operate in a matrix structure (a combination of two or more structures). Toyota’s matrix structure as argued by Jeffery K. et al (2006) in their book; “The Toyota product development system”, functional manager’s makes up one side of the matrix and the Chief engineers makes up the other side. For example, if a product group want to develop a new product or addition to their line, they obtain personnel from other functional departments (marketing, engineering, production) to work for the duration of the project. (More on structure needed).

2.4Culture

The Japanese cultural tradition which regards employment as a two way contract and a long life one has a tremendous impact on the culture of Toyota (Jeffery K. et al, 2004). Toyota culture is about creativity and innovation. Kiichiro Toyoda, founder of Toyota motor puts it in a better perspective, “Each person fulfilling his or her duties to the uttermost can generate great power when gathered together, and a chain of such power can generate a ring of power” (cited by Jeffery K. et al, 2004)

2.5 Leadership style

It is plausible to argue that Toyota have an Authoritarian kind of leadership owing to the centralized nature of the organizations structure. One of Toyota’s top sales directors, Seisei Kato summed up the company’s leadership model by saying “Never fail to reward merit, but never let a fault go unremarked. A good leader is never restricted to one “way of leading”, but is multi-faceted (Hill et al 2007). The leader of Toyota’s “impossible” invasion of the US car market, Seisei Kato, compared his brilliant leadership to chess: he was by no means always king – “sometimes I was a foraying rook, and at other times I bustled about as part of the fighting force like a bishop, (Back it up with a quote).

The external environment on the other hand comprises of factors outside the control of Toyota but they can influence (micro external) and factors completely out of the company’s control (macro external).

Pestle

2.6.1 Political and Legal- The recent safety issue that led to millions of recalls became a political battle between regulators in the United States government and Toyota. “Between 2003 and 2007, the American safety regulators open five reviews into sudden unintended accelerations (SUV) in Toyota” Blaire et al, (2010).

Economic-

Social

Technological- Because Toyota focuses on innovation; acquiring new technology in developing innovative products requires high research and development budget. Toyota’s R&D division focuses on various fields: environmental technology, safety technology, intelligent transport systems, personal mobility and robot technology (http://0-www.marketlineinfo.com.brum.beds.ac.uk/library/DisplayContent.aspx?R=2A89F017-6903-477A-A94B-628576B59972&N=4294841776).

2.7 Competitors’ analysis

Using Michael Porter’s five forces analysis, this report will evaluate competitive forces in the auto industry were Toyota operates.

2.7.1 Threats of new entrants- Given the amount of capital investment needed to enter the auto industry, the assumptions are that threat of new entrants will be fairly low.

2.7.2 Power of buyers- the auto industry faces weak buyer power because there are a few dozens of manufacturers but billions of customers around the world. And since the customers cannot manufacture cars themselves, the bargaining power lies with the manufacturers. But considering buyers to be dealers, who most often offers discounts suggest a high bargaining power of the buyers.

2.7.3 Power of suppliers- Because Toyota owns and controls most of its supply chain, the company enjoys a fairly low power of suppliers. And because suppliers of raw materials cannot build cars themselves, they rely on the auto makers.

2.7.4 Threats of substitutes- The auto industry is very competitive in every sense, with so many options available to the consumer with a very low switching cost suggest a very high threats of substitutes. “Because Toyota’s reputation is now under strain, Rivals General Motors, Ford and the fast growing Hyundai have mounted sales campaigns in America directed at concerned and disillusioned Toyota owners” (Hutton R. 2010)

2.7.5 Degree of rivalry- There is a huge rivalry between automakers in the industry.

2.8 Swot analysis

This is a planning method used in evaluating the strength, weaknesses, opportunities and threat to an organisation. The process involves specifying the main mission of the organisation at the same time identifying the internal and external elements that can affect its functions in the race to attain those stated objectives. In Swot analysis, the best strategy in accomplishing Toyota’s mission statements is by exploiting the company’s opportunity and strength, strive to neutralize its threats and avoiding the weaknesses. The swot analysis will be used as a technique to summarise Toyota’s internal and external environments.

CURRENT MANAGEMENT ISSUES

3.1 Quality control

Toyota were known for maintaining high standards regarding quality for decades, but there recent desire for global expansion and drive for profit is now a threat to the company’s future. In their pursuit for growth, the company neglects its best laid principles of a thorough quality check. Toyota ambition led the company to increase capacity up to 50% within five years, and in order to keep up with the rate of growth, the company outsource some of their parts from companies operating in Eastern Europe. Toyota chief executive, Akiyo Toyoda speaking before the US congress admits that “Toyota’s priorities have traditionally been safety, quality and then volume but these priorities became confused in the pursuit for growth. Paul Ingrassia (2010), in his book “Crash course” argues that; never build a new product in a new factory with a new workforce. Those “three nevers” are opportunity for trouble, because organizations must always combine knowing with growing if they are to succeed in a global marketplace. He emphasized how Toyota knew these principles, but yet forgot them.

Centralized management

The centralized nature of Toyota’s organizational structure worked poorly for the company in dealing with the crisis that started as a result of the recalls. As no one in all the regional operation offices has authority to making decision or speak to the press. Decision making is managed thousands of miles away from the crisis in the company’s headquarters at Japan. A global company like Toyota needed more autonomy for its regional operations to manage issues that affects those regions. For instance, Virgin group is an example of a very successful autonomous organization, owning to the fact that the company operates as a loosely but linked autonomous units which is been run by self managed teams. Virgin group approach to management was one that allows a decentralized decision making with much emphasis on autonomy. Every business level in the organization makes decision as it affects them and is responsible for their own development.

change

TOYOTA IN MANAGEMENT THEORIES/MODEL

4.1 System theory

Toyota philosophy of producing quality product efficiently through the complete waste elimination, inconsistencies and unnecessary requirement on the production line, makes the company a good example of system approach to organisation. A system is a collection of different parts (people, material, technology, finance etc), unified to accomplish a stated objective.

C02NF004

Source: Boddy D. (2008)

More recent approaches to organisation and management have helped to integrate previous work on structure, people and technology, by portraying organisation as a socio-technical system interacting with their environment (Worthington et al, 2009). This means, if one part of the system is removed, the nature of the system will have to be changed. Jeffery K. et al (2006) argues that all of Toyota functional organizations throughout the product development process are integrated and work collaboratively, and that the powerful synergistic effect produced by this integration is one of the most important reasons that Toyota production system is so successful. In order to deliver customer value and satisfaction, Toyota invests in the integration of processes, people, tools and technology.

Quinn’s model.jpg

Source: Quinn et al (1996)

4.2 Internal process model

Toyota is a huge, multinational Bureaucracy that cannot function exactly like early small car company function (Jeffery K. et al, 2006). The company is a cross functional and product focused organisations, with the functional departments managed by experts. Just like Max Weber Bureaucracy theory suggests, Toyota is characterized by hierarchical chain of command, an authoritarian structure that brings the whole system together. Personal performances as well as group performance are monitored across all stages of the organization. When designing and producing a new product, the company forms a unique project group which is made up of functional experts from different departments across the organization.

CONCLUSIONS

Toyota must regain customer trust in order to remain a market leader; before now when customers buy Toyota, they don’t buy because of the design or performance, but for its reliability and efficiency. The company must reassure its customers that it can still be a benchmark for quality and efficiency.

Maintain steady growth and keep it under control

Must formulate better strategy for crisis management

RECOMMENDATIONS

Just like many successful organisations, Toyota must allow customers need, efficiency and quality to be the driver for change and should not just look to cut cost. The company should invest in leadership development and sustainability scheme in all their regions of operation. Because with the accelerating tempo of change in the automobile industry Toyota’s success will depend on leaders than can make sound decisions and put into operation effective changes quickly.