Marks and Spencer: Business Model Interrogation & Development - Essay Example

Business model interrogation & development: Marks and Spencer’s Plc Introduction Business model outlines strategies and approaches that are aimed towards generating sustainable stream of revenue and profits. Managers have to consider a number of internal as well as external factors before developing a business model. This is because integration of those factors within the business model is of paramount importance (Morris, Schindehutte and Allen, 2005). It is after such a robust integration that a business model lays a solid foundation over which business operations can be conducted. The model serves as a framework that guides the workflow within an organization. Therefore it is extremely important for managers to develop a sound business model as failing to do so would severely disrupt business operations (Hedman and Kalling, 2003). It is with regards to this fact that the researcher will be attempting to evaluate the business model of Toyota Motor Corporation (TMC). Emphasis will be given the manner in which the managers in this company have integrated and developed the business model. The researcher will explain the company’s performance and strategies in the dimensions of product and capital market. Besides that focus will be laid on the organization’s product portfolio. This will allow the researcher to comment on the advantages and drawbacks of the business model implemented by Toyota Motor Corporation and what extent the internal organizational structure contributed to the business model. In that way the researcher will be able to make recommendations regarding any changes that need to be brought within the business model and the organizational structure. Company background TMC is a Multinational Corporation based in Japan which is mainly engaged in manufacturing and distribution of automobiles. The organization operates in three business segments which are automobile production, house design and financial services (Toyota, 2015a). Toyota is presently the market leader in the automobile industry. The company has achieved this stature by selling cars, minivans and trucks as a part of its business in the automobile segment (Thomson Reuters, 2015). Business model of Toyota Motor Corporation and relative profitability Toyota’s business model is based on two fundamental strong frameworks: Kaizen and the lean production system (also referred to as the Toyota Production system). Kaizen means incessant improvements that are to be bought in the quality of products. The managers of Toyota believe in working their way towards innovation in order to develop processes that are aimed towards continuous product development and improvement. Kaizen is an integrated strategy which formulates certain cross-functional strategies which involves gradual enhancement of business activities in such a way that it augments the operational effectiveness. The underlying strategy behind this model is to ensure superior quality products and service that contributes towards the development of brand image and enhancement of brand relationship quality. Attainment of the aforementioned factors will boost the company’s sales which in turn can be translated into profitability. The lean production system is based upon two key frameworks: Jidoka which refers to a system where equipment stops immediately after a problem is encountered which allows the managers to stop the production as well as distribution of broken down equipments and products. This saves a lot of cost for the company which would have been incurred if the design of faulty products resulted in raw materials wastage. Therefore nullifying the problem from the grassroots helped Toyota manager to reduce cost of production and generate profitability. The second framework is Just in time (JIT) which helps mangers to ensure that each process results in the generation of proper output which would be required in the subsequent operation thereby resulting in a continuous workflow (Toyota, 2015b). Profitability impact of lean management business model Lean management business model reduces the overall cost of production by a considerable margin. This fact has proven true for TMC and other organizations who have followed the same model. While normally companies follow a profit model where selling price is set on the basis of the profit required and the cost bared by the company. Therefore, in order to earn greater profits the selling price has to be set at a higher level. However, a higher selling price may deteriorate the sale of the product. This is where the relevance of lean management business model lies. Toyota applies a profit model where profit is computed by deducting cost from the selling price. Therefore, lean management principle that is aimed towards decreasing overall cost of production allows the managers to reduce its cost thereby maintaining the same selling price (Lean Manufacturing Tools, 2015). This in turn increases the profit margin for the company. Drawbacks of the existing business model One of the major drawbacks of the existing business model (lean production system) implemented by Toyota Motor Corporation is that it is receptive but not adaptive. Given the fact that the process runs on a predefined structure any disruption at any point in the middle of the workflow will delay or disrupt the subsequent operations. For example, in a lean production system if a particular operation fails to deliver the necessary output the subsequent process will not be initiated. There is no mechanism for pooling up resources from a different source which can compensate for disruption in the middle of the process. This is why this system is categorized as responsive but not flexible. Strategies to improve the existing business model To enhance the current business model, the managers of Toyota will have to optimize the lean production system by streamlining the operational processes, particularly the delivery of raw materials. They have to build manifold sources of deliverables that will act as substitute, if one process fails to deliver the necessary output. The lean production system implemented by TMC has to be flexible enough to acclimatize to changing demands in the market. Lending flexibility to the production system is of paramount importance considering the current performance of Toyota Motors in terms of decreased production value. Managers of Toyota will also have to incorporate several external factors such as fluctuations in home country and foreign country currency, purchasing power of target consumers and changes in fuel price. Product market of Toyota Motor Corporation As far as the product market for Toyota is concerned, it is highly concentrated with the presence of companies like General Motors, Volkswagen, Ford Motors, Daimler Chrysler and Hyundai motors. Companies like thee pose a steep competition to the automobile giant Toyota. The competition between these companies have inspired the managers to work continuously towards developing innovative technologies to product unmatched quality cars to satisfy the customers. The product market is highly prospective with nearly 72 million vehicles sold in the year 2014 all over the world (Statista, 2015). This suggests the development of the world economy that is characterized by the increasing purchasing power of people due to which more numbers of people are being able to afford a vehicle of their own. Close to 7 million cars were sold in the US which is known to be the second manufacturing hub for TMC (Statista, 2015). Nearly 18 million cars were sold in China which indicates the consistent improvement of this incessantly growing economy (Statista, 2015). Toyota has emphasized a lot on intensifying its operations in the emerging market owing to an increase in the middle class and upper middle class population. Volkswagen group and General Motors’ have been the leading automobile manufacturers last year in terms of production and sales respectively. According to Statista (2015), Toyota produced 8.5 million cars throughout the world in the year 2014. However this figure was relatively lesser when compared to production generated by General Motors and Volkswagen Group (Statista, 2015). Therefore, it is imperative for the managers of Toyota to modify their production strategy so as to strengthen its foothold in such a concentrated product market. Capital market of Toyota Motor Corporation If the share price of TMC in the last 3 years is observed, greater degree of deviations is evident. The first phase of share price reduction can be seen in the year 2014 when the company had to recall nearly 200,000 vehicles as a result of the installation of defective and highly dangerous Takata airbags (Yahoo finance, 2015a). This incident was negatively perceived by many shareholders, stakeholders, critiques and strategists in the automobile industry. This negative information was incorporated in the share price as defined by the efficient market hypothesis. Consequently the share price took a dipping turn in that particular year. This has led to a drop in sales of automobiles manufactured by TMC following which the organization had to report record lowest level of automobile sales in the last 15 years. Figure 1: Share price movement tracker (Toyota - last 3 years) (Source: Market Watch, 2015) However, the development of technology has allowed the company to enhance the quality of automobile in other segments such as the minivans and the SUVs. The managers of Toyota Motors have been able to lift their profit outlook as a result of declining value of yen. This is due to the fact that a weakening value of yen has increased the revenue generated by Toyota in the overseas market. This in turn has compensated for the slump in demand that prevails at the home country (Yahoo finance, 2015b). Consequently, greater profit was reported by the organization last year. The company forecasts that they will be able to replicate this performance at least for the next three years. This forecast was perceived positively by key players in the capital market which in turn has increased the share price of the company over the last quarter of 2014 and first quarter of 2015. This is how the product market and the capital market have integrated well with each other where performance demonstrated in the product market has been equivalently incorporated in the capital market in the form of increased or decreased share price returns. Product/service portfolio BCG matrix High market share Low market share High market growth Star: Land Cruiser SUV. Prius Hybrid. Question: Toyota Fortuner, Camry and Corolla, Diesel engine cars specially customized for the Indian market. Low market growth Cash cow: Daihatsu (small cars), Corolla sedan, Venza, innova Dog: Celica, Tundra pickup truck, Corona, Cressida and Crown (Nkomo, 2013). Relative profitability of the products Toyota Motor Corporation generated a considerable amount of profit over the last year by selling its hybrid models, the Prius Hybrid being the most successful one of the lot. While profits increased by five times in the last quarter of 2014, overall sales increased by 24% (Forbes, 2014). This was as a result of the augmented proportion of profits realized by the company by selling each unit of its hybrid models. The Toyota Prius hybrid has been the most accepted Toyota model all over the world precisely because of the quality that it offers for the price. The sale of this model contributed significantly towards making Toyota the market leader by beating General Motors. Internal organizational structure Figure 2: Toyota Internal Organizational Structure (Source: Toyota, 2015c) As is evident from figure 2, the organizational structure of TMC integrates both horizontal and vertical line of communication. The business activities are monitored and evaluated by the CEO and chairman while the functional units are headed by a General Manager. The flow of communication is highly lucid among the different functional departments which enhance the collaboration and coordination between operations conducted in each of the departments. The individual functional departments are classified on the basis of the tasks allocated and performed by members of that department. Current operations Toyota is currently engaged in massive scale production of its Toyota Prius Hybrid models in order to strengthen its foothold as the leading automobile manufacturer in the world. The managers have also decided to remodel some of the variants such as the Highlander, Camry and Tacoma. These cars are expected to boost the sales of Toyota provided that the price of Gasoline stays low (Auto news, 2014). As far as operations are concerned, the managers have decided to shift all of its US operations from California and New York to Texas. This is an interesting move taken by the company’s managers in order to integrate all its operations and set them under one roof. According to the managers this will offer the company more scope to compete with rival companies by streamlining operations as well as reducing overall cost of production (Hardigree, 2014). Business strategies that affect the organizational structure The business strategies adopted by the managers of Toyota Motor Corporation and its organization structure are absolutely aligned to one another. The strategies are adopted on the basis of the competency, skill sets and knowledge possessed by individual members of each functional department. There is an enhanced collaboration and coordination among the operational blocks which in turn makes strategy making and implementation relatively easy for the managers. Every strategy is formulated and implemented by respective departments which allow managers to streamline workflow efficiently (Toyota, 2015c). Assessment of the existing organizational structure As is evident from figure 2 given above, the organization hierarchy is rather downstream in nature where the chain of command follows a top down approach. This is the sign of a robust internal organizational structure as it helps the top management to maintain a rigid control over each and every aspect associated with the business activities. A major disadvantage of this internal structure is that it is centralized. In such a framework there is no scope for lower and middle level officials to participate in the decision making process. This leaves a number of chances for erroneous judgment which might work against the company’s objectives. Provided that the decision making process is limited to the tier managers, the scope of working towards innovation is also limited (Hardigree, 2014). Technological changes in Toyota Motor Corporation The development of contemporary technologies has enabled engineers in the organization to design automobiles that are green. The company has relied extensively on modern technologies in order to reduce the carbon footprint from both their operations as well as the manufactured vehicles. The managers have also endeavoured to reap the benefits of contemporary technologies by optimizing their lean management system in order to prevent resource wastage. This has helped the managers of Toyota to reduce the cost of operation (Hardigree, 2014). Conclusion The success of TMC in the automobile sector has been characterized by a heavily optimized business framework. However, its deteriorating production in the least year combined with its failure through the installation of defective Takata airbags has triggered a negative signal in the industry. Following that, the organization’s financial performance worsened in the capital market. This has brought forth the need to improve the business model in such a way that it decreases the cost of operation even further. Besides that, the managers need to lend further suppleness to the internal organizational architecture by including the middle and lower level officials within the decision making process. This will help the company to identify the areas of improvement following which appropriate strategies can be adopted. Reference List Auto news, 2014. Toyotas products, factory retooling set stage for market share gains. [online] Available at: [Accessed 17 February 2015]. Forbes, 2014. Toyota Earnings Preview: A Weak Yen To Improve Profitability. [online] Available at: [Accessed 17 February 2015]. Hardigree, M., 2014. Toyota Is Moving Almost All Of U.S. Operations To Texas. [online] Available at: [Accessed 17 February 2015]. Hedman, J. and Kalling, T., 2003. The business model concept: theoretical underpinnings and empirical illustrations. European Journal of Information Systems, 12(1), pp. 49-59. Lean Manufacturing Tools, 2015. Benefits of Lean Manufacturing: Why Implement Lean?. [online] Available at: [Accessed 17 February 2015]. Market Watch, 2015. Toyota Motor Corp. [online] Available at: [Accessed 17 February 2015]. Morris, M., Schindehutte, M. and Allen, J., 2005. 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