Management Philosophy of Toyotas Motor Corporation - Term Paper Example

Strategic Analysis of Toyota Contents Contents 2 Introduction 3 Discussion 4 Key strategic issue 4 Analysis of strategic drivers 8 Assessment of organization’s ability 10 Conclusion 13 References 15 Appendices 17 Introduction Strategic management can be stated as implementation and formulation of major initiatives and goals. This approach is taken by top management of a company on the basis of thorough analysis of external and internal business environment. Resource allocation plays a vital role in determining which of the strategies shall help a firm to obtain competitive advantage. Strategic management provides direction to an organization and takes into consideration specific objectives. Strategic planning is all about setting up plans in context of appropriately utilising resources so as to achieve set objectives. This concept is not static in nature since there is a specific feedback loop that helps to monitor the overall process. In highly competitive environment every organization has to undertake strategic decision so as to achieve set goals. There are various factors that directly or indirectly affect strategic decision making. Michael Porter had stated three important principles for a strategy such as creating value, deciding on what to do or what not to, and deciding on a best fit solution. On a broader context strategy is identifying, formulating and creating a plan so as to ensure long terms success or growth of an organization. In this particular study strategic analysis of a well known car company Toyota shall be conducted. This study will reveal different strategic dimensions of a real world company in order to sustain competitive position. There are two major concerns of an organization operating in current scenario that is controlling costs and increasing overall operational efficiency. This study will outline three environmental conditions affecting operations of Toyota. They are industry environment, internal and external environment. External environment comprises of political, economical, cultural, social, legal, environmental and technological conditions. Industry environment analysis is usually conducted through using five forces model of Michael Porter. Internal environment of a firm is strengths or weakness associated with organizational resources such as processes, IT systems and people. Toyota Motor Corporation is an automotive manufacturer of Japan and has its headquarters in Aichi, Japan. It is the twelfth largest company across the globe in terms of revenue and possesses diverse culture workforce. The company is first automobile manufacturer in the world and produces approximately 10 million vehicles in a year. Toyota has adopted best practices in the industry and offers best products and services to its wide base of customers. This study will highlight key strategic issues, strategic drivers related to those issues and a proper assessment of company’s ability in the competitive market place. Discussion Key strategic issue Management philosophy of Toyota’s Motor Corporation is related to origins of the organization that is Just In Time production and Lean Manufacturing. Business methods and managerial values of this company are known as Toyota Way. Continuous improvement and respecting team members are the major focus of Toyota Motor Corporation. There are some principles related to its business operations known as challenge, improvement or kaizen, teamwork and respect. Toyota has four major components – long term thinking on basis of decisions made by management, problem solving process, value addition to firm through people development and consistently solving basic problems that facilitate organizational learning. Its new innovative approach has made the firm sustain its position in the automobile industry. Internal environmental analysis of Toyota Motor Corporation will reveal internal strengths or weakness and external threats or opportunities of the firm. The major strength of the company is its innovative culture. Brand reputation of the firm is of high value and it amounts to approximately $30 billion. Toyota is considered as the industry leader in terms of sales and production (Toyota, 2013). It possesses a strong brand portfolio which helps to attract as well as retain large base of customers. Green technology as a concept was firstly implemented by this firm. The top management of the company was inclined towards designing green cars that can reduce overall impact caused on environment. It is presently considered as leaders in context of green cars development. On the contrary, weaknesses of the firm are its large recalls and weak presence in some of the emerging countries. The firm has not taken any strategic initiative to enter into emerging countries and explore available opportunities. Toyota had witnessed over the past few years large scale vehicle recalls. 9 million vehicles were recalled during the time span of 2009 to 2010. In 2012 7.43 million vehicles of the firm were recalled. This form of recalls does disrupt financial image of an organization and even affects brand reputation in the market place. The main markets of Toyota are Europe, Japan and United States. On the other hand, markets such as India or China constitute only a small percentage of Toyota’s overall sales. Since the firm has low market presence in emerging countries such as China it would be difficult to compete with large players like General Motors. There are wide set of opportunities available to Toyota Motor Corporation. Firstly is the positive attitude of the company towards green vehicles. In current scenario customers are highly concerned about the negative impact caused by cars in terms of air pollution. Customers nowadays prefer to buy electric cars or hybrid cars that emit less carbon dioxide into atmosphere. Increasing fuel prices is another opportunity for the firm since it opens up wide markets for its hybrid cars. Changing customer needs can be explored by Toyota in context of developing new car models and acquiring greater percentage of market share. The company in earlier years has acquired car companies and should continue this process in order to gain assets, skills, new market accessibility and growth (Aswathappa, 2008). Major threat for the firm can be decreasing fuel prices which will tend to make hybrid cars or electric cars less attractive for consumer market. New emission standards formulated by government shall result into more investments for designing cleaner engine parts and reduce profit margins. Rising raw material price will increase operational cost for the firm. Raw materials are an essential component in car manufacturing process and cannot be avoided. Appreciating yen exchange rate tends to decrease profit margins for the firm (Simerson, 2011). Intense competition is witnessed by the company from large automobile manufacturers such as General Motors and Volkswagen group. The manufacturing process of Toyota takes place in countries like Japan, China, Indonesia and Thailand which are often subjected to natural disasters. Another strategic tool which can be implemented so as to determine strategic position of a company is Five Force’s Model of Michael Porter. This framework helps to identify competitive position of a firm and various strategic issues. Figure1 in Appendices highlight the five forces model. The threat of new entrants is relatively weak in relation to automotive industry. Large capital amount is required to establish business in this sector. There are certain legal barriers that protect the firm from new entrants. High import tax is imposed by government so as to safeguard domestic market. Economies of scale cannot be easily achieved by small firms entering in this market. Bargaining power of supplier is low since wide range of suppliers is available and materials can be easily accessed. On the contrary, bargaining power of buyers is strong since switching costs is low and there are wide array of alternative car brands available. Buyer’s decision is mainly based of vehicle’s price and they are not afraid of backward integration. Threat of substitute is weak since similar convenience cannot be provided by other means of transport. However alternative transportation types cost comparatively less and are more environmental friendly. There is a high degree of competitive rivalry in automobile industry. This industry is huge but matured and large number of car brands is available. These firms target different customer segment and possesses large base of brand loyal customers. There is even a threat of being acquired by other companies in the automotive industry (Cullen and Parboteeah, 2009). Macro-environmental analysis of a company outlines the external environmental conditions that affect business operations. Political conditions surrounding Toyota Motor Corporation is associated with influence of government on country’s infrastructure. There are tariff rates, income tax, import duties, etc., set by governing body of different regions which has to be addressed appropriately by the automobile manufacturer. Economic conditions are related to world, local and national economic impact. Toyota Motor Corporation needs to work in a stable economic scenario since rate of unemployment, interest rates and economic growth affects customer’s spending power. Social conditions denote that people are more inclined towards hybrid cars in comparison to non-hybrid car. Custom and health of nation is also encompassed within social conditions. Technological advancements have happened at a rapid pace in automobile industry. New technology and innovation has effectively replaced conventional automobile vehicle. Toyota has to continuously produce new features in order to retain competitive position. Green cars can be stated as the first step taken by the firm to satisfy customer needs. Environmental conditions are mainly centred towards reducing rate of air pollution and creating less environmental impact through manufacturing operations. Legal norms or regulations define employee relations, relationship with supply chain partners, and performing overall tasks ethically. On basis of these strategic tools it can be stated that key strategic issue facing the firm is sustainability. This issue is not only related to managing business operations for longer time period but is even associated with meeting customer needs or demands. Toyota Motor Corporation has implemented best mechanisms as per industry standards so as to sustain its operations. However rapid growth of technology and fluctuating needs of customers are the basis of this firm’s innovation (Thompson and Martin, 2010). The concept adopted by the company in terms of green technology is highly imitable. Hence it requires developing a brand new approach for its target customers. Analysis of strategic drivers The strategic issue identified in context of Toyota Motor Corporation is sustainability factor. There are two important strategic drivers related to this issue known as stakeholder relationship and operating environment dynamics. Operating environment of Toyota Motor Corporation is continuously witnessing wide array of changes. The first major factor which is affecting operating environment is intense competition. Car companies need to be highly innovative since customer needs and wants alter at a rapid pace. Automotive manufacturers offer high involvement product and customers need to feel value for money. This need can only be addressed when the firm is ready to produce innovative product line. On the other hand, there are some common features which are offered by all automobile companies and cannot be replaced. In such scenario it becomes difficult to differentiate products or services. For instance, Toyota Motor Corporation is focused towards developing green cars but the concept of hybrid cars can easily be implemented by any other firm. Decreasing fuel prices tend to divert consumer preference from hybrid cars to conventional cars (Interbrand, 2013). The dynamic changes taking place in operational environment enables the firm to incorporate sustainable elements within the system. Sustainability issue is associated with operating environment changes since long term success can be achieved by being aligned with organizational objectives. There are different environmental conditions that affect business operations of this firm. Operating environment of Toyota Motor Corporation is continuously changing with the evolution of new players and advanced technology. In order to sustain in a business environment the most essential factor is to gain competitive advantage. The highlighted issue is being faced by the company since there are big players like General Motors operating in the same market. These firms develop products as per consumer taste and possesses wide base of brand loyal customers. Brand reputation appears to be a major challenge for the firm. Large scale of recalls which the firm has witnessed even contributes towards developing strategic plans. However this strategic driver is bound to pose some challenges for the firm. The first challenge will be in the form of lump sum investment. Toyota has to build a strong research team for analyzing market conditions and then developing required strategies. Market analysis techniques are quite expensive for firms and it requires expertise professionals to handle such techniques (Wetherly and Otter, 2014). Other challenge can be operational risk because innovative approach might bring forth significant changes in operational procedure. On the other hand, all team members may not be aligned with new strategic objectives or goals. Customer acceptance is a major issue in such high involvement products. Rivals at any point of time can offer better products and it can result into loss of market share. Another strategic driver is stakeholder relationship in automotive industry. Stakeholders are basically stated as individuals who has stake within an organization. In modern world stakeholders has gained great deal of significance since they play an important role in strategic decision making. Stakeholder’s interest needs to be firstly satisfied by a firm as they are the ones who execute strategic plans. The major challenge related to this strategic driver is to incorporate diverse ideas put forward by stakeholders. These thoughts are at times productive for an organization but in certain cases it needs to be eliminated since it encompasses wide set of risks. The sustainability issue of Toyota can be stated as its desire to stay competitive for long term or to be an industry leader in terms of innovative car manufacturer. This issue has resulted into changes in the business environment and development in stakeholder relationship. The firm needs to take into consideration opinions or thoughts of stakeholders so as to deliver best results. Assessment of organization’s ability The evaluation capability of Toyota is very high but its transparency is less than its competitors. The global accountability report published in 2006 suggests that Toyota is required to undertake various reforms. Toyota is required to develop and strengthen its commitment and dedication towards providing transparency in adopting a vast information about the organization so that it can identify the policy disclosures that will provide information about who, when and how the information will be provided and also it undertake responsibility in responding to the information request provided within a definite period of time. While disclosing the policy Toyota must commit that the information provided by the company is transparent. It is required for Toyota to develop and strengthen its capabilities towards enhancing their capabilities for engagement of the stakeholders by adopting the good practice principles for the engagement of the stakeholders (Cool and Goddard, 2006). In spite of having a good record building reliability of Toyota and very less defect in the vehicles as compared to its competitors the perception and impression of the people about the quality of the product and the services are generally influenced by the reports that are provided and published in the media and also their overall timings. Toyota indicates that in recent years the quality of its products has fallen. The main competitors of Toyota are Chevrolet, Hyundai, Ford and Toyota remarks that its competitors are producing better cars. The competitive strategy of Toyota and its competitive advantages is that the Toyota Production System is also known as the lean production system. The competitive forces of Toyota are far more stable and static as compared to its competitors (Avlonitis, 2001). The vehicle industry in present situation cannot only depend upon the excellence served in the production process because the performance gap that was prevailing among them is decreasing. The automobile industry especially Toyota has found out the three important challenges they are mainly regionalisation, fragmentation and saturation of the market. New capabilities and strategies are required to be developed and implemented by Toyota in order to face and deal with the competitive situation in the market and earn profitability. Toyota adopts and share some of the IT approaches with some of the leading software companies which includes database that develop automatic feedback among the various stages related to design, delivery , production, order and the service processes. The capability of Toyota adopting and utilizing the Information Technology economizes and saves it from the adoption and application of the traditional production system and the inventory or stock purchases which deals with estimating the amount of steel that would be required for developing various automobiles models. It is treated as a general issue for the other well known software users. Toyota is capable both organizationally and competitively in building the cycle of feedback among the various stages related to order, production, delivery, design and the service processes that will lead to the increase and development in the productivity in the sections and the areas that can be differentiated on the basis of the customer services, warranty, design and the availability of the products while decreasing and reducing the cycle time and developing the production and the delivery of the products as well as the replacement parts to its customers (Ahlstrom and Bruton, 2009). Toyota recognizes and identifies that developing better cycle time between the order of the clients and final delivery will reduce the cost and develop the business forecast since the projections and the estimates that are made are generally for shorter period. In the same way the faster design cycles will lead to the fast and rapid incorporation of the new latest technologies in its new model cars. Henceforth Toyota achieves more customer satisfaction through the fast and quick completion of the process of sales and the continuous enhancement of the product. Through the adoption of Information Technology Toyota has developed and improved its competitive advantage and competitiveness through its quick cycle time. Toyota was able to increase its profit through its process and product design development. The competitors of Toyota faced many losses and much pressure in order to rationalize and maintain the research and development. Toyota maintained and continued with its development and investment in Research and Development for the introduction and launch of its new model car. Toyota was successful in launching its developed product in the market particularly its innovative vehicle that is the hybrid car (Beugré, 2007). The competitive challenges that is faced by Toyota in this competitive situation and market deals with several strategic issues that is the international market for the automobile industry is not static and the various trends in the industry are inter linked . Toyota Motor Corporation has been the industry leader in context of innovative products based on the concept of just in time. It operates within limited markets and aim towards becoming the most preferred car brand. Effectiveness of the firm’s strategy needs to be addressed from cultural perspective. Organizational culture plays an important role in determining success or growth of a firm. Every firm adopts a specific culture that guides team members to perform operations appropriately. For instance Toyota follows a culture of producing products right on time and maintains quality standards. Quality can be stated as an important aspect within overall operation of the firm. Just In Time production as a concept was first introduced by this organization and this was done to reduce the lead time. “Toyota Way” is the set of managerial values which is followed by the team members. Employees are subjected to continuous training and development sessions so that they acquire skills and knowledge. There are some standards framed by the firm and all employees need to perform according to those standards. From cultural perspective Toyota Moto Corporation has a high potential to address identified strategic issue. Toyota employees have to work according to set values and guidelines. Continuous improvement and respect for people are the two parameters that govern entire operational procedure of the firm. Sustainability issue can be effectively mitigated if the company remain focused towards offering high quality products. On the other hand providing instant customer service shall enhance brand loyalty (Handy, 2006). This loyalty factor is essential in order to develop a wide base of customers. To be more precise if an appropriate culture is maintained within a firm then it directly impacts company’s growth. This is simply because culture is directly associated with performance of employees. A positive workplace environment tends to keep all employees motivated and inclined towards organizational goals. Toyota recruits employees from across the globe. There is a diversity observed within the firm’s workforce. Cross-cultural management has been appropriate within this firm in the form of aligning diverse opinions with common objectives. Team work and respect are the two most important principles which are followed by the organization. Respect towards team members help to identify their loopholes and mitigate them. It even facilitates collaborative work which is needed in competitive business environment. Apart from these factors Toyota’s culture even reflects continuous organizational learning. This kind of learning supports a firm to address any root problem and develop better strategies. People development is a unique way to add value to a firm’s operations. Since employees of Toyota consider themselves to be an integral part of strategic development it supports the firm to withstand any form of challenges. Conclusion As per this study Toyota Motor Corporation has adopted best practices so as to sustain their market position. There are various dimensions related to strategic management and is dependent on environmental conditions. Toyota over the years has been offering innovative product line to its target customers. It has been able to address fluctuating customer demand and develop new strategic framework. There are some strategic tools which help to determine strategic position of a firm. These tools are Porter’s Five Forces Model, SWOT analysis and PESTEL. Internal and external environmental analysis portrays the competitive position of a firm. Toyota operates in a highly competitive business environment where there are big players like General Motors, Volkswagen, etc. In midst of such strong rivals it eventually becomes difficult to maintain market position. Sustainability is thus outlined as the major strategic issue that is witnessed by the company. Long term growth is the main area of concern for any organization. On the other hand, high involvement products like car are highly dependent on attitude or personality of customers. Toyota was the first company which produced millions of vehicles in a year. It has been able to set high performance standards because entire business operations are based on two concepts known as just in time production and lean manufacturing. Organizational culture of the firm has played an active role in enhancing its performance level. Toyota Way that states the firm’s culture is a brief description about values and guidelines to be maintained by team members. Cultural diversity is greatly observed in this firm but the concept of teamwork and respect helps to eliminate all forms of cultural barriers. Strategies adopted by the firm till date ensures strong competitive position but in current scenario focus should be on addressing any strategic issue. Changing stakeholder relationship and environmental conditions are key strategic drivers for the firm. These elements facilitate strategy formulation and even force a company to incorporate necessary changes as and when required. Strategic analysis of Toyota has revealed its current position in the industry and even outlined future market scenario. References Ahlstrom, D. & Bruton, G. 2009. International management. Stamford: Cengage Learning. Aswathappa, K. 2008. International Business. Noida: Tata McGraw-Hill Education. Avlonitis, G. 2001. Strategic Industrial Marketing. London: Routledge. Beugré, C.D. 2007. A Cultural Perspective of Organizational Justice. New York: IAP Cool, K. and Goddard, J.G. 2006. International Business: Theory and Practice. New York: M.E. Sharpe. Cullen, J. and Parboteeah, K. 2009. International Business: Strategy and the Multinational Company. New York: Routledge. Handy, C., 2006. Gods of Management. Oxford: Oxford University Press. Interbrand., 2013. Best global brands 2012. Available at: http://www.interbrand.com/en/best-global-brands/2012/Best-Global-Brands-2012.aspx [Accessed on 4th December 2014]. Simerson, B.K., 2011. Strategic planning: a practical guide to strategy formulation and execution. USA: ABC-CLIO. Thompson, J., and Martin, F. 2010. Strategic Management: Awareness & Change. Hong Kong: Cengage Learning EMEA. Toyota., 2013. Company profile: overview. Available at: http://www.toyota-global.com/company/profile/overview/ [Accessed on 4th December 2014]. Wetherly, P. and Otter, D. 2014. The Business Environment: Themes and Issues in a Globalizing World. Oxford: Oxford University Press. Appendices Figure 1: Five Forces Model Read More