Toyota Australia Responds to Current Operating Conditions - Case Study Example

Managed Change at Toyota Australia Table of Contents I. Introduction 3 II. Background 3 III. Change Drivers 5 IV. Perspective Taken on The Managed Change 7 V. Dilemmas Faced 8 VI. Change Tools Used 9 VII. Changes in Organization Culture 9 References 11 I. Introduction This paper presents change management at Toyota Australia, in light of recent developments, tied to the greater market forces. II. Background The auto industry in Australian in general is facing a crisis brought about by worsened economic fundamentals elsewhere in the world, affecting the volume of exports as well as domestic consumption, and likewise being affected by the higher valuation of the Australian dollar, which has had the effect of making exports more expensive in the international market, as the higher exchange rate for the Australian dollar translates to higher input costs, higher labor costs, and higher prices for the exported products. This problem is reflected in the general auto market in the country as well as in the labor market, with the government saying that the sector will experience substantial losses of jobs, which is inevitable and to some extent non-reversible, owing to the changed nature of the auto industry around the world, In other words, the changes are not short-term and transitory in nature, but reflect a long-term change in the industry, brought about by changes in global trends in that industry (Beissman 2012; Beissman 2012 ( b)). The malaise in the industry in Australia is widespread and not isolated to a few auto manufacturers and suppliers. Recent reports have it that most of the manufacturers, from Ford to Holden to Toyota. In January of this year, Toyota made the announcement that they were to terminate the employment of 350 workers, due to tight financial conditions in the subsidiary and due to the changed international market dynamics that has affected the amount of business that the company generates from exports. As the CEO of Toyota Australia noted in a statement attendant to the news of the reduction in staffing at the company (Beissman 2012; Toyota Motor Corporation Australia 2012): Mr Yasuda said the company’s vehicle manufacturing production levels have reduced from 149,000 in 2007, to 94,000 in 2011, and an expected 95,000 cars in 2012.“The reality is that our volumes are down. What we assumed was a temporary circumstance has turned into a permanent situation. This drop of 36% in just four years shows the scale of our challenges.” (Toyota Motor Corporation Australia 2012) As Mr. Yasuda notes, business is down and the trend is not temporary, but has been in process for the past four years. Export volumes are down, and not only that, the competitiveness of Australian-made Toyota vehicles is also noted to be down. The Australian currencys strength has likewise negatively impacted the volumes, because of the higher prices owing to the improved currency valuation versus other currencies. This makes Toyota in Australia less competitive in terms of cost too, in comparison to other markets and other production locations in the world (Toyota Motor Corporation Australia 2012). As of the time of the announcement, Mr. Yasuda also noted that the changes that were being made in the Toyota operations in Australia were geared for the long term, and towards making Toyota Australia competitive under the changed operating condition and market conditions in the world. Those market changes are long-term, and so must the changes. The workforce is to undergo adjustment to align it with the companys long-term plans, and that adjustment may mean re-training and reorganizing the workforce. That can also include renegotiating wages and working arrangements as well. Sourcing for parts is to be optimized for cost and efficiency. Efficiency gains are to be a primary goal. As well the overall cost structure of the manufacturing facilities and the entire operations is to be optimized (Toyota Motor Corporation Australia 2012; Beissman 2012; Beissman 2012 (b)). That said, it is to be noted that Toyota in Australia is expected to remain in the country, but has not made a commitment to continue operations past the year 2017. Taking a step back, the entire auto industry in Australia is estimated to employ about 55,500 workers directly, while also generating an additional 200,000 in related or support workers in related industries (Beissman 2012 ( b); Beissman 2012). It is worth noting that even as Toyota Australia faces tremendous viability problems, it remains the major force in the Australian domestic automobile market, maintaining its overall sales leadership in the country in 2011, for a record nine years of being at the top of the industry. That Toyota Australia faces problems that necessitates major changes in spite of its market leadership speaks volumes of the massiveness of the inherent problems facing the Australian auto industry and Toyota in particular (House of Japan 2012). III. Change Drivers As discussed above, there were several drivers of change in the auto industry in general in Australia, and in Toyota Australia in particular, The change drivers are mainly tied to the changed nature of the international market, the changed dynamics of the industry brought about by the stronger currency, the long-term trend towards reduced profitability, higher operational costs, reduced export volumes, and reduced competitiveness of exports, among other things. In Toyota meanwhile there are also company-specific factors that have caused the changes in the overall viability of the Australia business. In 2010 Toyota was hit by a quality problem that led to massive and expensive recalls, and which had the overall effect of tainting the image of Toyota as a maker of reliable and quality vehicles. The problem hit Toyota at a time when the entire auto industry was reeling from a crisis that had the effect of putting the financial viability of many car manufacturers, not just Toyota, on the line and in a precarious state. At the height of this crisis, Toyota itself was said to be in need of emergency funding to see it through this very rough period in its history, Since that time one can argue that the auto industry around the world has not really fully recovered, and the long-term pain definitely has already had an impact on Toyota Australia (Rowley 2009; Vlasic 2010). The general change driver therefore has its roots extending back to many years prior to the planned reduction in personnel announced early this year. In Australia in particular, the need for changes has been highlighted by increasingly declining sales, even well before the crisis of confidence that shook Toyota when it had to recall a large number of vehicles in the United States mainly, and to some extent in other key markets. The changed financial fundamentals of Toyota Australia, and the changed nature of the Australian domestic car industry, are also arguably major change drivers. One can even argue that the domestic financial fundamentals and market prospects, as well as the prospects of Toyota Australia in the export markets, had a greater change drive impact on the company than the international developments that had tarnished Toyotas reputation and hurt revenues and profitability. As the Toyota Australia CEO noted, the environment had changed to a degree where Toyotas Australia business was not so viable anymore. Long-term prospects are uncertain, and the company has not made any plans to stay or to go beyond the next five years. One can even say that recent personnel turmoil in Toyota Australia may have little to do with the planned changes, and may not be much of a change driver in this particular case (Beissman 2012; Beissman 2012 (b); Beissman 2011; Beissman 2011 ( b); Beissman 2011 (c); House of Japan 2012; Toyota Motor Corporation Australia 2012). IV. Perspective Taken on The Managed Change The changes are being made from the perspective of long-term viability of the Australian operations, in light of the changed financial fundamentals and changed market conditions that are foreseen to persist for a long period of time. As the CEO notes, the changes in operations and the planned reduction in personnel all flow from this larger perspective of viability. If Toyota operations are not viable as things stand, then either changes are to be instituted, or there is no sense in continuing to operate at a loss. The same goes for other aspects of the planned or managed change. Cost has to be better managed and optimized in light of the higher currency valuation of the Australian dollar. There may be cost efficiencies to be had from importing parts from other parts of the world, where exchange rate differentials and overall lower costs can translate to lower input costs for Toyota Australia. Where feasible personnel changes are to be made in line with the planned changes, which are in turn seen from the perspective of making sure that personnel costs are optimized and that personnel decisions are based on making sure that the company in Australia has the right skills and competencies, at the right prices, to make the kinds of products that will make Toyota financially viable as an operation in Australia in the medium to long term. Taking a step back, one can note that this is the only perspective for change management that makes sense for top management at Toyota in Australia, It is not for improved profitability for its own sake, or for market expansion, but just to make sure it is viable to just continue to operate from Australia, from a financial viability point of view (Beissman 2012; Beissman 2012 (b); Beissman 2011; Beissman 2011 (b); Beissman 2011 (c); House of Japan 2012; Toyota Motor Corporation Australia 2012). V. Dilemmas Faced Managements key dilemma is with regard to staying put and planning for the long term, or planning to eventually leave Australia given the difficult financial and operational situation it has found itself in, after a gestation period of four years, when its finances continually deteriorated even as the global auto industry likewise faced the same kind of problems as Australia. Revenues have been going down for a long time, and the strengthening Australian dollar coupling this financial deterioration had the effect of squeezing Toyota Australia and other car manufacturers in the country from two ends. The market is disintegrating, and so are the underlying operational fundamentals of the company. Should the company wait out and operate at a loss, or should it try to make itself financially viable? How much time should the company give itself before saying that the cause is lost, and that the best business move is to exit Australian operations entirely? Another set of related dilemmas has to do with personnel decisions. Given the harsh market conditions and the tight financial and operational fundamentals of Toyota Australia, are they to retain workers, and at what rates? How many should be let go, and what are the impacts of such personnel decisions on the operational efficiency and viability of Toyota in Australia? How much should the firm continue to invest in personnel, before calling it quits? How do financial decisions and product decisions impact personnel? These are all dilemmas that are tied to making changes in the company and managing those changes (Beissman 2012; Beissman 2012 (b); Beissman 2011; Beissman 2011 (b); Beissman 2011 (c); House of Japan 2012; Toyota Motor Corporation Australia 2012) VI. Change Tools Used The company basically made use of fundamental change management tools centering on communication and in the explanation of the fundamental reasons for the change. There is, first of all, the use of systematic modes of managing the personnel side of the change, via planned layoffs that reflect the changed fundamentals of the companys financial viability. As well the company communicated and validated how the external market conditions necessitated such personnel change. The literature calls this making a formal case out of the planned changes. No doubt with the fact that Toyota Australia is not alone in facing difficulties in the domestic and international markets, and the fact that government itself had acknowledged the changed and difficult market conditions, made it easy for Toyota Australia to make the formal case for change. The formal case made by the CEO is one that is also a solid business case. There are good business reasons for the changes, in other words, and that was the message and the formal case that made it easier for Toyota Australia to sell the idea of the planned changes not only to employees but to the market in general (Beissman 2012; Beissman 2012 (b); Beissman 2011; Beissman 2011 (b); Beissman 2011 (c); House of Japan 2012; Toyota Motor Corporation Australia 2012; Jones et al 2004). VII. Changes in Organization Culture Toyota culture is entrenched and well-developed, and this organization culture no doubt is the same culture that will allow Toyota Australia to meet its change goals of greater operational and cost efficiency for the subsidiary. There are no foreseen changes in organization culture in this case, except maybe for a greater diligence in the application of culture to effect changes and meet those change targets successfully (Beissman 2012; Beissman 2012 (b); Beissman 2011; Beissman 2011 (b); Beissman 2011 (c); House of Japan 2012; Toyota Motor Corporation Australia 2012; Jones et al 2004). 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