Toyota Strategic Analysis and Strategy Formulation - Research Paper Example

?Strategic Management: Toyota Strategic Analysis and Strategy Formulation Executive Summary Toyota aims to consoli market leadership into the future. A motivated workforce, the Toyota Way organisational culture and formidable research and product development are the main strengths towards achievement of this, while product quality is a main concern. The internal analysis and industry analysis performed reveal a set of core competencies that inform the decision to propose sustainable competitive advantage as the best strategy for the company as it works towards its vision. Company Purpose An analysis of Toyota’s purpose; vision, mission, objectives, company values and stakeholder analysis - provides insight on Toyota’s current position in the global market and the strategic direction of the company. First, the company’s global vision is to “lead the way to the future of mobility, enriching lives around the world with the safest and most responsible way of moving people” (Toyota-global.com 2011). Further, this vision is based on the commitment to quality, high innovativeness and respect for the earth. From the company’s vision, it is clear that Toyota seeks to be the industry leader way into the future. The company’s mission statement is “To sustain profitable growth by providing the best possible customer experience and dealer support” (Toyota-global.com 2011). The mission and vision statements reveal that the company’s current and future are pegged on sustainability, quality and customer satisfaction. The company’s range of guiding principles involve honouring the every nations law to be a true global corporate citizen, respecting customs and cultures around the globe, production of cleans and safe products, outstanding products through technology, fostering individual creativity and teamwork through an appropriately enabling corporate culture, harmonious growth with the global community and healthy cooperation with stakeholders (Toyota-global.com 2011). From these objectives, it can be discerned that Toyota seeks to remain within the law at all times, provide quality and safe products, respecting the environment and the community while balancing this with stakeholder interests. These principles also indicate the time-tested ethical inclination of Toyota; sustainable development and respect for environment and harmony in the company’s work environment. Internally, the company not only seeks to comply with all labor and employment laws and regulations but goes a step further and establishes a culture for its employees based on mutual trust and mutual responsibility (Toyota Motor Corporation 2006, p. 8). The company’s values are integral in attainment of its objectives as it seeks to fulfill its mission and drive towards the established vision. Internal Analysis of Toyota The review of Toyota’s internal resources will follow the format of first establishing the strengths of the company and then the weaknesses. This will then be followed by an analysis of Toyota’s product development and a value chain analysis of Toyota’s operations. Strength: Organisational- The “Toyota Way” Toyota has successfully implemented their widely recognized “Toyota Way” strategy in all its global business operations. This strategy is based on operational excellence through a 4-P model; philosophy, process, people and problem solving. Philosophy is anchored on long-term thinking; process on waste elimination; people on respect, growth and challenge; and problem solving through the concept of continuous improvement. The resultant effect of this strategy is organizational performance excellence due to sustenance of high quality that not only attracts customers but also makes them loyal (Liker 2004, pp. 1-2). The “Toyota way” is a clear strategic strength since it is tailor-made for the company as evidenced by the fact that most of the other operational excellence strategies pursued by organizations around the world were developed from it, including the popular “lean manufacturing”, “just in time” and “six sigma” philosophies. As a result, Toyota is way ahead of competitors since its strategy has evolved with the company and is integral in Toyota’s organizational culture, hence few challenges can hamper its implementation. Besides, the “Toyota Way” is a well established company tradition, embraced by the employees and passed down generations in what has been famously regarded as Toyota Company’s “genes” and “DNA” (Hino 2006, pp. 1-3). Strength: Human-Motivated Workforce Toyota boasts of an exceptionally talented workforce that under close observation takes credit for the growth of the company from a small company in Japan to the renowned automaker as it stands today. The top leadership at Toyota appreciates this fact and believes that their sole competitive advantage lies in their talent development and priority on workforce. The “Toyota Way” only works due to the successful uptake by the employees, and the Toyota culture of hard work and continuous improvement is possible through the quality of employees present (Liker and Hoseus 2008, pp. 37-38). Toyota’s excellent workforce is a considerable strength especially considering the fact that the company operates on principles based on continuous improvement and high quality and organizational performance appraisal, which would prove strenuous and overwhelming to weak employees. It is not unknown for companies to adopt noble strategies and policies only for them to fail due to difficulties in adoption by the workforce. Weakness- Quality Concerns Toyota’s large size as a company means that any errors in manufacturing result in numerous faulty vehicles availed to the market which leads to customer dissatisfaction and aloofness to the future car models. This is particularly damaging to reputation as evidenced by the recent recalls of vehicles due to failed break systems; concerns on safety are enough to cause virtually irreparable harm to a company such as Toyota, besides the losses accompanied by the recalls (Webb 2010). Commitment to quality is one of the key principals of the company and thus it should not be seen to fail in this part. Review of the total quality management system at Toyota to accommodate the demand-driven mass production is of utmost priority. Product Development at Toyota Toyota takes its research and development seriously, and hence has a fully fledged Toyota Industries section guided by the founding spirit of being “ahead of the times through endless creativity, inquisitiveness, and the pursuit of improvement” (Toyota-industires.com). The section coordinates two categories of activities; development and improvements in products performed independently at each business division and research and design processes undertaken by the “Research & Development Center” which has separate activities from the business divisions and aims at a company-wide management strategy. According to Liker (2006, p.1) the Toyota product development system is highly effective due to a number of strategies; it focuses on customer value and waste elimination, decentralises decisions, leans on world class technical competence, has front-loaded processes and identifies and attacks barriers to innovations and improvements. The product development currently at Toyota is well-suited to drive the company towards in its mission as elements of sustainability and environmental consciousness are quite discernible. It also takes into consideration the customers- a hugely significant category of stakeholders in the motor vehicle industry. Toyota Value Chain Analysis Toyota has a formidable value chain centred on business units through which the vehicles undergo value addition at each step as shown below: Figure 1: a) Toyota’s value chain in relation to stakeholders’ value chains & b) Toyota’s organisational value chain. (Source: Scribd.com 2010) The first figure indicates that Toyota seeks to work with stakeholders with well-established value chains to in order to maximise on professionalism. The company’s value chain is harmoniously linked with the suppliers, distribution channels and ultimately the customers. This enables a smooth and efficient flow in the processes of procurement, productions, distribution and finally sales. In the second figure, it is clear that the company has followed the popular visualisation of the value chain and integrated this into their company culture. Each department within Toyota is properly linked with each other as the product moves through the company. Rather than work disjointedly, the different sections cooperate and collaborate under the “Toyota Way” ethos to ensure that the organisation is run efficiently, operations optimised and accountability is maximised. Toyota’s value chain also incorporates consumer views through close and enduring relationships. It has also adopted intensive and extensive application of IT in its expansion (Toyota.co 2001). External Analysis Analysis of Toyota’s external environment will be undertaken through a PESTEL analysis and Porter’s Five Forces analysis. The decision not to use SWOT analysis lies in the fact that the strengths and weaknesses are internal and have already been analysed. All other strategic analysis tools are not as comprehensive as the selected two and most of the results they generate will still be covered by PESTEL and Porter’s 5 Forces analysis. PESTEL Analysis on Toyota Political Environment An analysis of the company’s political environment has to consider its transnational operations hence the influence of the home government and the foreign governments. Basing on this, Toyota has experienced considerably positive effect from the Japanese government as on many occasions throughout its timeline it has sought financial help from the government. The latest of these is in 2009-2010 where the car-maker sought a loan from the government to help it navigate the global economic recession (Inskeep 2009). Externally, examples of government influence on Toyota also prove to be in the positive as can be seen by the $545 million upgrade by the Canadian government on Toyota’s Ontario plant. The two instances (home and foreign) are in line with Toyota’s principles of respecting laws and regulations across nations and establishing strong relationships with governments as part of its stakeholders and thus is critical to the company’s vision. Economic After periods of steady growth not only for Toyota but also for the entire automobile industry, the recent economic downturn has reversed fortunes for all carmakers and a mass producer such as Toyota has been largely affected. Consumer spending power has hit lows and most countries around the world are still in recovery from the recession. Priorities have shifted towards basic needs especially in middle-income and developing countries where Toyota is the market leader (Wad 2010). The impact of this on the company was the reporting of its first operating loss in 70 years, with a $1.6 billion dip in 2008-2009 compared to a profit of $25.2 billion the previous year, although the firm is in a recovery path as of now (Toyota-global.com 2011). Social Analysis The social aspect is a huge determinant of success in the car-making industry as volatility linked to societal perception can fell giant companies. This is clearly appreciated by Toyota as can be seen in its being highlighted among the principles of the company; respect of customs and cultures of people around the globe (Toyota-global.com 2011). Toyota also undertakes an effective CSR strategy and involves the society in its value chain process. Most significantly, the company has established the Toyota Community Connection with its suppliers. This philanthropy program has to date $1 million in donations to charities in areas where Toyota and its suppliers have operations (Tundrasolutions.com 2011). Technological Analysis The vehicle industry is characterised by cutting-edge technology by the major players as different manufacturers seek to make safer, fuel-efficient, high performance and comfortable vehicles among other considerations. Toyota’s technological disposition indicates that it has an eye on the future and concentrates on production on vehicles that are less harmful to the environment. This is manifested in engine modification towards the use of alternative fuels and power-train technologies besides making headways towards the first “ultimate eco-car” (Toyota Motor Corporation 2007, p.1). This is directly in line with the company’s principles on leading into the future, innovation and environmental conservation. Environmental Analysis The motor-vehicle industry is at the forefront of the going green revolution due to its direct links to organic fuels and mass production factories. Toyota’s efforts in environment consciousness and sustainability are entrenched in its principles and cover production processes and the final product. In the production system, Toyota has adopted the highly praised lean manufacturing (Appendix 1) with emphasis placed on the “just in time” process systems. The results have been attractive; 22% reduction in energy use as of 2008 (Balle and Balle 2008, pp. 17-22). Legal Aspects Toyota is highly concerned about being lawful as demonstrated by compliance with each nation’s laws across the globe being the very first principle of the company (Toyota-global.com 2011). Besides, the company has taken steps to ensure that its global policies and activities are in line with requirements. Compliance with labour laws, corporate ethics and prime risk management issues are fundamental aspects of Toyota’s operations in the global market. Porter’s 5 Forces Analysis on Toyota This industry analysis will be based on the extensive information on the car making industry provided by Bradley et al (2005). Bargaining Power of Suppliers An important determinant in this case is the volume. Toyota and other car makers are mass producers and the volume of its needs is critical to suppliers. Hence, the reliance on large volume purchase by Toyota leaves the suppliers with little bargaining power and may positively affect Toyota. Besides, the lack of proliferation in new car makers means that the traditional industry leaders retain substantial power. To add on this, the fact that most automotive parts are usually standardised and only for use in motor vehicles limits supplier power. Bargaining Power of Customers The customers have considerable bargaining power versus car-makers due to a number of factors. They have a number of different producers from which to select besides the fact that increasing informed consumerism may transcend the power of brands. Switching between brands does not involve large costs due to a number of standardised vehicle classes in the market. Toyota and other car-makers however balance this power off due to the large number of consumers which translates to limited leveraging on their part and gives the advantage to the car-maker. Competition The motor-vehicle industry is developing into a competitive one as firms seek to gain competitive advantage. It is noted that several competitors have aimed at production of cheaper vehicles- Toyota’s niche market- in a bid to attain overall cost-leadership in this highly competitive market. Traditionally premium-vehicle manufacturers are diversifying into affordable vehicles and eating into Toyota’s markets. However, Toyota has a head start in this since it is already recognised by the market. Besides, it combines affordability with emphasis on quality and reliability and hence stays ahead of competitors. Threat of Substitution In general, the threat of substitutes to the vehicle industry is only fairly mild despite the numerous other forms of transportation. Some of the substitutes include the increasingly accessible and affordable point-to-point air travel and high speed railway lines. These, however, fail to achieve the convenience, utility, independence, value, and flexibility that vehicles present and significant substitution of car-makers is still not in sight. Entry of New Competitors The car manufacture industry is not easy to break through for a new entrant with substantial barriers to entry in place. These include prohibitive initial capital ventures, lack of strong distribution networks as the incumbents, prerequisite advanced technology, difficult-to-achieve economies of scale and presence of well established and strong brands in the market. Proposed Strategic Direction After the thorough internal and industry analysis conducted on Toyota, the proposed strategy for the company to achieve its mission should be based on sustainable competitive advantage. A strategy based on sustainable competitive advantage first takes into consideration the tangible and intangible resources present in the company and uses these to discover the firm's core competencies. These core competencies are then used to generate strategic competitiveness. When this is done on Toyota, it is clear that the yet to be matched supply network, lean management and just-in-time inventory system, the culture in Toyota (the Toyota Way) and premium quality production facilities around the world are the core competencies of the company that have brought industry leadership (Financial Times 2001, pp. 3-4). Toyota should thus build on this while adding other considerations to their strategy as a result of the global economic conditions. In particular, quality should be prioritised with implementation of a proper checking system before vehicles are released for sale to avoid a similar scenario to the recent break failures. More emphasis on research and product development should be undertaken, with efforts towards fuel-efficient vehicles maximised so as to attract customers amid the rising global fuel prices. The hard economic times call for adaptation in the product mix, with both premium and non-premium products being produced for different markets to ensure the company’s cost-leadership in many global markets is maintained. Expansion into emerging markets for example in China, India and other Asian economic economies where a strong middle-class is emerging should be undertaken. Conclusion Toyota’s vision, mission and objectives all point at strengthening market leadership and becoming the industry standard into the future. The main strengths lie in the company’s Toyota Way culture, a highly motivated and able workforce, an effective product development section and an efficient value chain. Product quality is, however, an issue that needs to be addressed. PESTEL and Porter’s 5 forces analysis reveal that Toyota is in a strong industry position, and pursuit of sustainable competitive advantage into the future is proposed as the most prudent strategy. References Balle F & Balle, B 2005, “Lean development”, Business Strategy Review, pp. 17-22. Bradley, D et al. 2005, Automotive industry analysis, viewed 18 November 2011, Vaghefi, RM 2001, “Creating sustainable competitive advantage: The Toyota philosophy and its effects”, Financial Times, viewed 18 November 2011, Hino, S 2006, Inside the mind of Toyota: management principles for enduring growth, Productivity Press, UK. Inskeep, S 2009, Toyota wants Japanese government loan, viewed 18 November 2011, Liker, JK 2006, The Toyota product development system: Integrating people, process and technology, viewed 18 November 2011, Liker, JK 2004, The Toyota way: 14 management principles from the world's greatest manufacturer, McGraw-Hill Publishers, US. Liker, JK and Hoseus, M 2008, Toyota culture: the heart and soul of the Toyota way, McGraw-Hill Publishers, US. Scribd.com 2010, Toyota Co. value chain analysis, viewed 18 November 2011, Toyota.co 2001, Annual report: Value chain, viewed 18 November 2011, Toyota-global.com 2011, Company vision and philosophy, viewed 18 November 2011, Toyota-industries.com 2011, Research and development (R&D), viewed 18 November 2011, Toyota Motor Corporation 2006, Toyota code of conduct, viewed 18 November 2011, Toyota Motor Corporation 2007, Towards the ultimate Eco-car: Toyota’s power-train technology for sustainable mobility, viewed 18 November 2011, Tundrasolutions.com 2011, Toyota's Community Connection program surpasses $1 Million in donations, viewed 18 November 2011, Wad, P 2010, Impact of the global economic and financial crisis over the automotive industry in developing countries, United Nations Industrial Development Organization, viewed 18 November 2011, Webb, T 2010, Toyota recalls 1.66m cars worldwide amid fears over brakes and engines, The Guardian, viewed 18 November 2011, Appendix 1 Fig 2: Lean management at Toyota. (Source- Balle and Balle 2005, p. 19) Read More