Toyotas Core Competencies and Capabilities - Essay Example

Topic: Toyota Using module theory and examples from the case discuss the development and management of Toyota’s core competences and capabilities. Identify the sources of Toyota’s competitive advantage and suggest options that could help Toyota address the issues discussed at the end of the case in 2009? The concept of competence tree is significant in the analysis of Toyota’s core competencies and capabilities. The concept is focused on the idea that an organization is viewed as a tree having roots in form of specific competencies. These competencies are responsible for the growth of an organization’s core products which in turn support the growth of other business units. Eventually the business units are responsible for the production of the end products. This has been the case of Toyota. Toyota is among the most successful businesses in the global car manufacturing market. The success of the company is attributed to its core competencies and capabilities. Toyota entered the vehicle manufacturing market with the few competencies and low capabilities that saw the company manufacture small volumes of cars annually. In 1947, the company could only manage to manufacture 100,000 cars only. The company was small in size and had limited resources and capacity to produce significant volumes for its market. This situation was compounded by the fact that the company was a new entrant in the car manufacturing market. However, the company made the first step towards growth by creating a team of visionary managers that had competent skills in the manufacturing of cars and the management of the company in the new Japanese market. The operations of the company were directed by the exceptional skills of the founder. The founding team has been at center of the management of the company because of the management principles that they managed to establish when Toyota was making entry into the car manufacturing industry. Toyota’s core competence is its efficient and effective production process. The company has one of the most efficient production systems in the world which have enabled the company to reduce the time and costs associated with the production process. The efficiency of Toyota’s production process is related to the fact that the company has the potential of manufacturing high volumes of vehicles within the shortest time. In terms of effectiveness, the company produces such large volumes but still maintain quality. For instance, in the year 1962 the company was taking 15 minutes to change dies but the time was later reduced to only 3 seconds in its current product process. Based on the VRIO framework, I must comment that the company’s production process was valuable to the company. While competitors were spending a lot of time assembling the final product, Toyota had managed to produce close to double units. The company managed this core competence by developing new production methods that continually reduced set up times. The company has maintained to stay ahead of competition by reducing time in its manufacturing process. The company also has an effective value chain that has managed to drive company sales and production volumes. Using porter’s value chain, Toyota has managed to create a formidable marketing and sales team that is responsible for the collection of market data with regards to the needs of consumers. The company also has one of the most efficient assembly lines in the world and has managed to reduce the number of defectives in its products. All these have enabled the company to attract new customer and reduce costs of production making the company record high profit margins ahead of its competitors. The above mentioned core competencies have maintained high capabilities for the company. The company has the capability of recording high profits from its operations even when there exists tough economic times. This is achieved using a combination of good management and an efficient production process to reduce production costs while attracting high levels of sales. This can be illustrated by the company’s performance since its incorporation. The company has managed to record positive revenues apart from an instance where there was a global recession in 2008. The company also has a large production capacity with more than 9 million units produced annually in the global market. The company uses a combination of its efficient kanban production system and modern equipment to implement the use of mass production. Toyota has a number of competitive advantages resulting from a number of factors related to the company. The first source of the company’ competitive advantage is the fact that the company has a comprehensive expansion plan that has seen the company expand into the international market especially North America. This has enabled the company capture market share in the US resulting in large sales volume for the company. The company also has an effective research and development department that has resulted in the company producing cars that are relevant to the needs of consumers. For instance, the company has managed to respond to customer needs for reliable and effective cars in terms of low fuel consumption. At the end of 2009, the company faced a number of challenges including a fall in the sales levels in its domestic and overseas market especially North America. This led to the company recording losses after a very long time. However, there are a number of options that the company can explore in addressing these problems. One of the options is that the company can reduce the production of luxury cars and concentrate about eighty percent of its resources on the production of fuel efficient cars. The company may even consider starting producing hybrid vehicles that do not rely on the use of fuel and are environmentally friendly. This is based on the fact that there was a global financial crisis that led to consumers reducing their demand for cars. Despite the problems that were facing the company, there are other companies such as KIA that were making a breakthrough during the crisis. The company should consider making partnership with such companies just like the case where the company partnered with General Motors to establish a plant in the US. The other option for the company is to exit markets that record the lowest sales levels and that have slim chances of recording positive results within a span of one to two years. 4) Using module tools and theory, analyze the structure, evolution, and challenges of Toyota’s competitive landscape in the automobile industry as described in the case study. Discuss Toyota’s position in this industry and the impact of the external environment on their strategic planning processes. Toyota’s competitive landscape can be analyzed using porter’s five forces analysis. This involves the analysis of five factors that determines the company’s competitive landscape. The factors include barriers to entry, suppliers, buyers, competitive rivalry and substitutes. There are a number of barriers to entry into the car manufacturing market and some of the barriers include cost of entry, technology and knowledge, product differentiation, government policies, brand image, sales volumes, and access to channels of distribution. The car manufacturing industry is characterized by protection of existing knowledge and technology. Companies have taken steps to protect their knowledge and technology in efforts to reduce duplication from competitors. This requires that companies making an entry posses their unique knowledge and technology. The industry is also affected by government regulations in terms of quotas and subsidies. This means that governments have substantial control and influence over the car industry and their policies play an important in determining the success of the company. Majority of the car manufacturing companies apply the use of mass production that has seen most of them record high sales volume in the market. This therefore limits companies with low production capacities. Mass production ensures that car manufacturers enjoy economies of scale and reduce costs of operations. Toyota is an established company and therefore has managed to address of the barriers to entry. However, the company is still faced with the issue of government policies when making entries into new markets. This has seen the company given quotas in the supply of cars like in the case of China and the US. Toyota manages has handled the issue of quotas by making partnerships with local car manufacturers and eventually establishing a plan in such countries. In terms of suppliers, the car manufacturing industry has strong suppliers. The strength of these suppliers is influenced by factors such as their moderate small number, high switching costs and unique products. This gives them a strong influence over the price and quality of end products. Toyota has about 70 percent of its production processes in the hand of suppliers. The company heavily relies on high quality products from suppliers who are very few in the market. At one point, the company faced quality issues with its operations in North America forcing it to source supplies from Japan. The company realized that it had few suppliers who could meet their need for quality parts. The company has also maintained long relationship with its suppliers because of the high costs involved in switching from one supplier to another. The car manufacturing industry has a very high threat of substitutes. Consumers in the car market are very conscious over the price and quality of cars. This is evidenced from the fact that whenever there is an increase in prices consumers tend to shift their demand to more affordable cars. Toyota was faced with a similar challenge when it was making its initial entry into the global market. Its cars were highly priced compared to those of General Motors and Ford. This led to the company’s cars less desirable and consumers preferred cars from Ford and General Motors. However, such buyers have moderate bargaining powers because of their large numbers, moderate costs of switching and the presence of strong brands such as Toyota, Ford and General Motors. There is very high competition in the car manufacturing industry. This is because of the presence of numerous competing businesses such as General Motors, Ford, Nissan, Hyundai and Renault. The competition in the industry is mainly influenced by price, product quality and few barriers for exit. This has seen Toyota compete for the control of the global car market where it faces stiff competition from General Motors and Ford. The porter’s five force factors have an impact on Toyota’s strategic planning process. From the above analysis, we can conclude that the company is operating in a highly competitive market where buyers and suppliers have moderate and high bargaining powers. The market also has high levels of product substitution, competitive rivalry and stringent barriers to entry. This implies that the company has to balance its focus on both the external market and its internal resources. This is evident from the fact that entry barriers are related to internal resources apart from government influence. The remaining factors are related to market opportunities and the company has to equally to analyze this area when identifying strategies for success. Generally, the external environment has both positive and negative impacts on the company’s strategic process. The benefits arise where the company is able to have a clear understanding of factors it has little or no control. On the other hand, the external environment slows down its strategic process because it takes time to understand the external environment. For instance, the external environment created the opportunity for the company to expand into the international market while at the same time it led to the company recording poor sales in the same markets during the 2008 financial crisis. References Barney, J. B. and Hesterley, W. S., 2008, Strategic Management and Competitive Advantage: Concepts and Cases, Second international edition. Upper Saddle River, New Jersey: Pearson Education. Dedrick, J. and Kraemer., 2010, "Who profits from innovation in global value chains?: a study of the iPod and notebook PCs." Industrial and Corporate Change 19(1): 81-116. Hamel, G., Doz, Y. and Prahalad, C. K., 1989, Collaborate with your Competitors - and Win, Harvard Business Review, January-February, 67 (1). Available through UH LIS electronic journals (Business Source Complete). 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