Toyota Motor Organisation: PESTLE Analysis

INTRODUCTION

The Toyota Motor Organisation is a leading global enterprise, generating revenues rivalling the largest publicly listed companies in the world. Competing in today’s hostile markets, especially within North America and Japan, has pathed the way for this company to develop the abilities to understand the needs of the market and adapt to them. Throughout this report, the emphasis will be placed on the identification of the various opportunities and threats as well as Political, Economic, Social, Technological, legal and Environmental issues which Toyota face relentlessly. Key elements such as the Business Model, Strategy and Structure will initially be analysed and discussed.

CORPORATE RESEARCH FINDINGS

Corporate Structure

Toyota structure forms around a hierarchy basis, with its headquarters in Japan.  The headquarters is responsible for the final decisions on all the matters and is accountable for passing on judgment and decisions on major issues much like the representation of the apex of Mintzberg Five Basic Parts of Organizations’ in Appendix D.  If it is apparent that individual business units do not communicate well with each other, then the Japanese head office will give the final decision. The company maintains a global hierarchy approach but has adapted its structure to allow its regional heads business units too have an increased say. Toyota Motor Corporation’s organizational structure has learnt to adapt in order to guarantee faster decisions and higher quality of output. Toyota is one of the industry’s leading manufacturers, so requires a well thought out structure to support business goals and strategic direction. The structure still forms around a much centralised approach as considerable decision-making takes place at the headquarters in Japan however with the global nature of the company continuing this has allowed for decentralised decision making to take place on less serious issues. This involves cascading work down to regional managers and then to individuals which Jeremy Hall believes is important for a company’s success. ‘The performance of the organization as a whole depends on the performance of each individual’ (Jeremy L. Hall 2014).

Corporate Strategy

This aspect of Toyota’s business deals with how the company generates profit and growth while aligning to the firm’s chosen goals. One of the first major strategies implemented by the company occurred in 1973 at the height of an oil crisis. With an oil scarcity hitting the global market, customer confidence had plummeted driving down profits for Toyota. A strategy needed to be put in place to enhance the prospects for the company which pioneered the concept Lean Manufacturing which is still used today by the company as well as others. The system reduces manufacturing processes that don’t add any profound value to the company. The concept allowed the company to make a profit even during periods of slow growth which give the company a competitive advantage over its rivals who failed to innovate similarly. A guide to effective decision-making’, refers to the importance of suppliers when outlining a company’s strategy stating, ‘They have considerable power to damage a competitive position’ (Kourdi, J.K 2015). . Toyota made the decision early during manufacturing in North America to give local suppliers small order and demand certain standards and costs before putting in larger orders. This strategic approach built up a mutual understanding. This structure of Toyota must be totally integrated with strategy for the organization to achieve its mission and goals.  Structure supports strategy.  If an organization changes its strategy, it must change its structure to support the new strategy. Toyota had a strong centralized global hierarchy but it was found Individual business units did not communicate with each other, which caused slow response times. In 2013 Toyota updated its strategy to focus on having better response time for safety incidents. Toyota’s new structure provides a better degree of flexibility. With this new structure, the company is far better equipped to deal with pressing regional issues. This flexibility enables Toyota to swiftly respond to issues and to provide higher quality products as a result of the structure aligning with the new strategy.

Business Model

Toyota Business Model is based upon the 4P Principle of the company. Firstly, the Philosophy of the business can be seen to focus upon the long-term planning of the company instead of just aiming on short-term profits. The next aspect is the Process which ensures the company meets consumer demands through systematic improvements in production. People and Partners is the next key area, which is about Respect among all departments, equal rights between employees. Lastly Problem solving which aims at encouraging managers and workers during the decision-making processes.

STRATEGIC ANALYSIS

SWOT ANALYSIS

[The swot analysis can be found in Appendices labelled Appendix A. Value chain analysis labelled Appendix B was used to detail the internal characteristics of the analysis and the Porter's 5 Forces was used to examine external factors of the analysis which is labelled Appendix C.]

PESTLE ANALYSIS

The Pestle Analysis will provide a framework for investigating the external environment for Toyota’s Global business. The six areas considered will be reflected upon when identifying possible sources of change in future dealings.

Political (high)

‘When using the Pestle technique it is important to recognise that we are looking for factors that fit two criteria: they are outside the sphere of influence of the organisation, and will have some level of impact upon it’ (Paul, D.B 2010). This is perfectly exemplified when dealing with the concept of Brexit. Concerns revolving around tariffs being imposed on imports to the company’s manufacturing site in England can’t be controlled but will need to be managed to avoid further uncertainty. Several Toyota’s UK suppliers reside within EU countries which will have a direct effect on the company’s manufacturing accords after Britain leaves. The possibility of Tariffs being imposed will mean reduced profits and a possible re-think of future dealings with these suppliers. External deals between the UK parliament and EU leaders will have a profound effect on the company’s annual performance which Toyota will then be required to act upon. The UK leaving the European Union inherits Political risk that was not expected for the company. Rugman’s explains Political risk mitigating factors by saying ‘effective negotiating can help to reduce and contain problem areas’ (Rugman 2006 Page 376). This is precisely what Toyota and numerous businesses will hope for from the UK government. Political dealings can have a positive effect for Toyota’s performance which is exactly what is happening in Japan. The government subsidises customers who invest in the Japanese Hydrogen car ‘Mirai’ as it strives to fulfil climate targets. Identifying this allows the company to invest into a growing market, as a result of an external political decision.

Economic (High)

Toyota has faced economic issues throughout its history ranging from recessions to taxes. Importing supplies to the Japanese market will cost much higher, reducing profit for the company. Taking the flip side of this argument there is a great chance for Toyota to ramp up its exports out of Japan and into thriving economies such as the US automotive market. The weak Yen allows the company to export at competitively lower costs as the cost of goods is substantially lower compared to other companies that export from countries with stronger currencies. David Flath outlines this economic advantage for Toyota when writing the ‘yen is considered to favour Japanese exports; many manufacturing firms are investing abroad in countries where goods can be produced even more economically’. (Flath, D.F 2014 Page 240) Toyota conducts most of their business with the US as the dollar is notably stronger than the Yen. The better the business growth of a country or state, the more opportunities for the company. By and large, the GDP of the state is a significant factor supporting in the success of the company like Toyota. Currency exchange rate fluctuations plays a major economic factor that directly affects Toyota reported profits. For example, company’s operating income for the financial year 2014 benefited from an additional 900.0 billion Yen boost due to weakening of the Japanese yen against both the dollar and euro. (205)

Social (Local)

Social and cultural trends have a major impact on the sales of international markets. One way of tackling this issue is to focus on localization in regional markets. Cultural changes to people’s attitude over the environment in the late 90’s lead to Toyota creating its answer for customers concerned. This came in the form of a hybrid vehicle called Toyota Prius, offering more fuel-efficient journeys. Customers are demanding standards higher than ever. Toyota Motor lied to the public for years about the sudden acceleration of its cars, a sham that caused the company to be hit with a 1.2 billion dollars in fines by the Justice Department. The settlement equated to a third of Toyota’s 2013 profit and was reported as being called the ‘largest criminal penalty imposed on a car company in U.S. history’. With labels like this being attached to the company has caused public opinion to plummet resulting in reduced revenues. (147)

Technological (High)

The automobile industry is heavily based around technology. The better a firm’s technology, the greater are its sales. Toyota focus on aspects ranging from commuters’ safety to the rider’s convenience. Consumers are attracted to technologically innovative brands. When it comes to innovation Toyota are one step ahead of the competition with the new Toyota Mirai the most recent example. David Boody described how Porter identified ‘two types of competitive advantage: low cost or differentiation.’  The world’s first hydrogen fuelled Car steps away from the low-cost, high volume aspect of strategy to offering a more differentiated option that suits the ever-growing eco-friendly mind set of today’s consumers. This differentiated approach offers superior quality and branding for the company. Being first to a new idea is key to successful strategy, ‘People tend to stick with what they’ve got, and if you’re there first, any copycat measures by a competitor will just reinforce your idea’ Trout, J.T (2010). Technology has grown important in marketing too where social media is being used to connect with the customers and to engage with the company on a global scale. Toyota has an army of followers connected across its social media platforms which supports the brand’s quest to remain number one. Toyota can be found building celebrity buzz through its blockbuster unveiling parties, encouraging Members to spread its messages as part of their social media marketing strategy. (194)

Legal (High)

There are several areas where legal problems can result in costs for companies. Passenger safety is one of the main issues that have a deep legal impact on companies. Toyota focuses around customer safety however has had numerous recalled vehicles in recent years. An example of this was the problematic passenger safety air bags had raised issues for the company. Toyota has announced the recall of 1.7 million Toyota and Lexus cars at the start of 2019 as it was reported airbags could explode on use and send shrapnel at passengers. Twenty-three people have died worldwide due to airbag inflator problems with the supplier’s model. Toyota will pay at least 1.1 billion dollars to resolve a lawsuit related to its sudden- acceleration scandal, which was one of the automotive industry’s largest settlement. Not only did this cause the company much financial hardship, it also attached a negative public image to the company which will have a lasting effect. (160)

Environmental (Moderate)

Environmental concerns are now at the forefront of customers beliefs. Toyota is aware of this and aims to have a higher popularity and a better public image. Governments are also encouraging companies like Toyota and encouraging those which have managed their environmental impact better than others.  Environmental ethos has become part of business strategy. Toyota has achieved several important achievements when addressing environmental concerns. Toyota’s most recent accomplishment was its fuel cell vehicle Mirai. Toyota has shined in several regions and continues to make efforts to improve its contribution in environmental protection. While governments are trying to move toward below 2°C scenario, Toyota has, under the New Vehicle Zero CO₂ Challenge, decided to challenge itself to reduce vehicle carbon dioxide emissions by ninety percent in comparison with 2010 amounts, by 2050. Toyota has chances to provide more environmentally friendly products, such as electric cars or cars with higher fuel efficiency. In this element of Toyota’s PESTLE analysis, the environmental factors present opportunities that the firm can use for further growth. Environmental decision making has continuously been implanted at Toyota. In 1984 the company formed an alliance with GM. When inspecting their plant Toyota found a crack in the paint, which allowed hazardous chemicals to leak through. ‘When the new plant managers were called in to look, they told the staff, to call the Environmental Protection Agency (EPA) and find out what the agency wanted them to do.’ This showed Toyota’s ethos to do what was correct and safe no matter the blame it could inherit. (226)

CONCLUSION

This report demonstrates the strengths and weaknesses of Toyota using techniques to identify the internal and external forces facing it. The points illustrated will allow the company to identify any issues with the business philosophies, to make informed decisions which will strengthen the gap over the company’s competitors, like Ford.  (51) s

REFERENCES

1)     Cadle, J.C (2014). 99 essential tools for success. BCS: , The Chartered Institute for IT; 2nd edition edition. 2)     Kourdi , J.K (2015). A guide to effective decision-making. : Public Affairs. 3)     Paul , D.B (2010). 72 Essential Tools for Success. BCS: The Chartered Institute. 4)     lto , I.T (1996). Brookings Papers on Economic Activity. (2 ed.). Washington DC: Brookings Institution Press . 5)     Boody, D.B (2010). ]Management: An Introduction. (5th ed.). New Jersey: Prentice Hall. 6)     Trout, J.T (2010). Differentiate or Die: Survival in Our Era of Killer Competition. (2 ed.). Hoboken, New Jersey: John Wiley & Sons, 2010. 7)     Liker, J.L (2004). The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer. (2 ed.). New York City: McGraw-Hill Education. 8)     Rugman, A.M.R & Collinson, S.C (2006). International Business . (4th ed.). England: Pearson Education. 9)     Werbach, A.W (2009). Strategy for Sustainability: A Business Manifesto. (1st ed.). Massachusetts: Harvard Business Review Press 10) Hall, J.L.H (2014). Managing and Measuring Performance in Public and Nonprofit Organizations: An Integrated Approach, . (2nd ed.). San Francisco, California, United States: Jossey-Bass. 11) Clegg, S.R.C, Kornberger, M.K & Pitsis, T.P (2008). Managing and Organizations: An Introduction to Theory and Practice . (2nd ed.). San Francisco, California, United States: Sage Publications Ltd. 12) Porter, M.P, Kornberger, M.K & Pitsis, T.P (1985). Competitive Advantage: Creating and sustaining superior performance. (1st ed.). The University of California: Free Press. 13) Flath, D.F (2014). The Japanese Economy. (3rd ed.). Oxford : Oxford University Press. 14) MINTZBERG H.F (1979.). THE STRUCTURING OF ORGANIZATIONS , 1st ed. the University of Michigan: Prentice-Hall.

BIBLIOGRAPHY

• -Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model. Strategic Change, 15(5), 213-229.
• -Toyota Motor Corporation (2015). Toyota’s Strategy for Environmental Technologies.
• -https://www.ifm.eng.cam.ac.uk/research/dstools/mintzbergs-5-ps-for-strategy/
• -https://www.tutor2u.net/business/reference/porters-generic-strategies-for-competitive-advantage
• -https://www.thebalance.com/japan-s-economy-recession-effect-on-u-s-and-world-3306007
• http://internationalbusinessreview.blogspot.com/2015/07/value-chain-analysis-toyota.html
• https://www.business-to-you.com/scanning-the-environment-pestel-analysis/
• https://www.thebalance.com/yen-carry-trade-explained-pros-cons-how-it-is-today-3305971
• http://panmore.com/toyota-generic-strategy-intensive-growth-strategies
• https://www.investopedia.com/articles/markets/021416/how-toyota-makes-money-tm.asp
• -2018 ANNUAL REPORT TOYOTA
• -https://www.japantimes.co.jp/news/2015/03/26/business/corporate-business/toyota-adopts-new-business-model-cost-saving-platform-shift/#.XaeidOhKiUk

APPENDICES

Appendix A -SWOT Diagram Appendix B -Value chain Diagram  

Support Activities:

Technology:

Toyota is known universally for its outstanding engineering and technology. Apart from great production technology, it has its own research facilities and has moved in into partnership with institutes like MIT and Stanford for better innovation.

Infrastructure:

Toyota has its headquarters in Japan but is also present in North and South Americas, Asia and Europe.

HRM:

Toyota had 364.5K employees in 2017. The brand believes an Intelligent and talented human capital can be a major source of competitive advantage.

Procurement:

Toyota procures materials from numerous suppliers’ across the world. In 2009, the brand identified a strategy for a specific ‘Toyota way of purchasing’ that lays down the policies and principles that the staff must follow. Through its procurement strategy, the company contributes to local economies. Appendix C –Porters Model Low

Explanation of Porter’s Model with respect to Toyota

1) Competition: While the number of major global players in the automotive industry may be small, these companies are highly aggressive in terms of business and marketing. 2) Potential of new entrants into the industry:  Any new competitor would need to spend a substantial amount. This it very difficult for any new brand trying to find a foothold in the industry. 3) Power of Supplier: Due to the high number of suppliers Toyota does business with, there are a large number of options before Toyota. It can always switch to a new supplier without any trouble. Many of Toyota’s suppliers depend on Toyota greatly for its business so this gives better control for Toyota. 4) Power of Customers: The customers have several options before them many at very high standards and low costs like Toyota. Appendix D – The Five Basic Parts of Organizations Diagram