Features Of Toyota's Competitive Strategy In The Automobile Market - Research Paper Example

Features Of Toyota's Competitive Strategy In The Automobile Market I.0 Introduction Performance measurement is one of the vital aspects of an organization’s journey towards success and growth. Conventionally organizational success is measured mostly by financial analysis and the success or otherwise of the organization is judged in terms of the economic benefits it contributes to its owners. Contrary to this, the present day business environment has undergone radical change in its outlook and structure and as a result, the performance measure of business organizations has also changed. Today, business organizations are reviewed by the community/society for the services/benefits it contributes to the society as a whole as part of its mandatory responsibility and commitment towards society. In this context, a new measure of organizational success has come into being; which came to be known as the Balanced Scorecard (BSC). It can be used as performance measure for any organization; which integrates the performance of the organization in strategy implementation, operational logistics, customer satisfaction, along with economic performance. In this context, the present paper discusses the implementation of BSC system at Toyota, an international automobile giant. The paper takes a descriptive approach wherein all aspects of implementation of the novel measurement system have been detailed. It also throws light on the implications of BSC system on the organizational overall performance. 2.0 Why Balanced Scorecard? First introduced in the early 1990s, the balanced scorecard concept has become widely known, and is now accepted in various forms worldwide. Indeed, the Harvard Business Review, in its 75th anniversary issue (HBR, 1997), cites the BSC as being one of 15 most important management concepts to have been introduced via articles in the magazine. The balanced scorecard can be described as a `management system' (not merely a measurement system) that enables organizations to clarify their vision and strategy, and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results (see Appendix I for the process of building a balanced scorecard). When fully deployed, the BSC transforms strategic planning from an academic exercise into the nerve center of an enterprise by incorporating four different perspectives: Financial Customer Internal Business Learning and Growth A detailed discussion of the all the perspectives and its diagrammatic representation (Figure 1) follows hereunder: Financial Perspective Financial performance measures indicate whether a company's strategy and its execution are contributing to the bottom-line of the organization, the improvement of which is the ultimate objective. The Financial Metrics measure the economic implications of actions already undertaken in terms of Return on Investment (ROI)/Economic Value Added (EVA). The various financial objectives can be increased operational income, high sales growth, economic-value-added etc. The financial perspective serves as the focus for the objectives and measures in the other scorecard perspectives. This perspective reflects the concerns for profit enterprises that every action should be part of the network of cause and effect relationship that culminate in improving short-term and long run financial performance. In the process of identifying goals and measures, different financial matrices may be appropriate for different units within the organization, linking those units' financial objectives to the overall business unit strategy. The company's financial goals simply should be to survive, to succeed, and to prosper. Survival is measured by cash flows, success by sales revenue, and operating income by divisions and prosperity by increased market share by segments and return on equity. But given today's business environment, should senior managers only look at the business from a financial perspective? Should they pay attention to short-term financial measures like quarterly sales and operating income? Many have criticized financial measures because of their well documented inadequacies, their backward looking focus, and their inability to reflect contemporary value creating actions. Shareholders Value Analysis (SVA) forecasts cash flows and discounts them back to a rough estimate of current value and attempt to make financial analysis more forward looking. Customer Perspective In today's competitive markets, it has been acknowledged that "customer is the king". The main objective of any company is to retain current customers and acquire new customers. Customer Metrics define the market share of the organization and the perception it enjoys from the stakeholder point of view. It includes several generic measures of successful outcomes from a well-formulated and dexterously implemented strategy. The various objectives under this perspective would be customer satisfaction, customer retention, new-customer acquisition, customer profitability etc. This perspective views the ability of an enterprise to offer improved goods and service, the success of its delivery, and overall customer service and satisfaction. The concern for customers fall mainly into four categories: Time, Quality, Performance and Service and Cost. To make BSC workable, firms should coherent goals for time, quality, and performance and service and then translate these goals into specific measures. In addition to measures of time, quality and performance and service, companies must remain sensitive to the cost of their products Internal-Business-Process Perspective The internal business processes of an organization determine the achievement of other objectives like improved financial performance and customer satisfaction. This perspective of BSC focuses on not just improvement of the existing processes, but the identification of entirely new processes. Internal Business Metrics deal with the organizational excellence achieved by the company through the process of new product/technology development/process improvements (Banerjee et al., 2005). This perspective focuses on the internal business results that lead to financial success and satisfied customers. To meet firm’s objectives and customer expectations, they identify the important processes in business at which it must flourish. These important processes are supervised to ensure that results are satisfactory. Internal business processes are the mechanisms through which performance expectations are achieved. Learning and Growth Perspective The fourth perspective of the BSC aims at organizational growth and development by building the right infrastructure. In that regard, this is more a future-oriented perspective. People, systems and procedures determine organizational learning and growth. BSC helps in identifying the gaps between the existing capabilities of the people, systems and procedures and the desired capabilities. The various objectives under this perspective include employee satisfaction, employee training, real-time availability of data, etc. Lastly, Learning and Growth Metrics evaluate the organization in terms of Innovative Research, Intellectual Capital Growth through Knowledge Management/Knowledge Sharing. The tool -Balance Scorecard, by integrating all these perspectives, which are both current and future oriented, helps in translating organizational strategy into measurable goals and objectives. This perspective views at the capacity of the workers, the information systems’ quality and the effects of organizational alignment in supporting organizational goals. Processes will be successful only if enough skilled and motivated workers, provided with accurate and timely information are driving them. This perspective is important for organizations that are undergoing radical change. In order to face ever changing business needs and customer expectations, workers should assume fresh responsibilities. Firms are in need of skills, capabilities, technologies and organizational designs that were not available before Toyota- A Brief Profile Automotive industry is very dynamic. It is comprised of hundreds of suppliers and thousands of spare parts units across different parts of the world. The industry as a whole includes car industry, two-wheelers, commercial vehicles, multi-utility vehicles, auto parts manufacturer, suppliers, dealers, etc. Toyota is one of the leading automotive manufacturers. It is better to be called as the leader in the industry worldwide. The company, founded by Kiichino Toyoda in 1937, had conquered many milestones in its history. In its journey towards success and growth over many decades, the company had believed in the great philosophies of the founder. The firm offers a widest range of automobiles to all user segments across the world. The firm has state-of-the-art automobile plant for cars as well as light commercial vehicles. The firm's solid-brand equity has empowered it to establish its presence strongly in both the domestic as well as in the international markets. Due to globalization and its after effects on the industry, the automotive sector has made remarkable changes in its approach by changing its model from traditional local business to that of a global business. The company has made efforts to improve its profitability and efficiency, by seeking better ways to achieve operational improvements, reduce operating cost and enhance customer service through efficient evaluation system. In its efforts to introduce a perfect system, the company has made strived to introduce BSC that can align the corporate objectives and strategies. Based on these corporate objectives, the following objectives for the BSC project were designed. Develop an actionable and measurable framework for implementing the organizational objectives Drill down to specific projects and deliverables to accomplish the goals Develop an implementation plan that supports the execution of projects Develop a financial plan Provide goals for each individual employees Make organizational changes within the firm to align with the corporate objectives and enable realization of the objectives Phase I The project was conceived and implemented in two stages. Phase I was the planning stage of the project and involved the following steps. The prerequisite however was the customization of the Balanced Scorecard to match specific organizational needs. 1. Identify the specific goals that contribute to the achievement of these objectives (Measures). 2. Translate these goals into Measurable, Acceptable, Realistic and Time Bound Goals (Targets). 3. Drill down these objectives into specific projects (Initiatives) and deliverables to accomplish the goals. 4. Prioritize projects towards achieving results in the next 3-4 months. 5. Identify the Goal Owners and Project Managers to fix responsibility and accountability. 6. Create a framework to facilitate the creation of goals for each individual employee at Tiara India. At the end of the implementation of Phase I, which was nearly three months after the project started, the management learnt a few lessons and also identified some best practices specific to the organization, which were the success factors. It realized that involvement of resources apart from management team in the Project Team was very essential for the success of the project. The basic reason is that the employees who actually implement the project need to be involved from the beginning for winning their conviction and trust. Periodic reviews with the senior employees at Tiara Inc. and Tiara Europe help in aligning the project objectives with the corporate objectives. The company sources also realized that high visibility and transparency in terms of sharing documents is essential to win the trust and confidence of the employees. The project management team realized that it had underestimated the extreme effort required which eventually leads to burnouts. This was due to the unprecedented nature of the work done. This lesson helped the management in better execution of Phase II of Project Star Den. Phase II Phase II of the project was the implementation stage. Phase II envisaged an execution/implementation of the 18 projects at Priority 1, taken from Phase I of Star Den. The prioritization of the projects was done based on the basis of business criticality, time frames, resource requirements and business judgment. The goal of this phase was to achieve complete implementation of all the Priority 1 Projects as per the project plans. The different aspects of Phase II were: 1. Total effort estimation based on the effort of individual projects. 2. Design of Project Team Organization Structure and fixing the responsibilities of different roles. 3. Procure and allocate resources based on project staffing requirements. 4. Train the resources to meet the different project goals. 5. Plan for inter-group communication and coordination to align efforts. 6. Develop a risk management plan for each project, to be reviewed by the Project Manager. Benefits The BSC approach helped Toyota in successful achievement of its objectives. The best outcome has been that the organizational strategy and vision were achieved. Defining measurable and specific goals has helped the organization in using a planned approach. Responsibility and accountability for the success of each project were fixed based on its ownership, which helped in improved performance. Support teams and key drivers helped the projects reach successful conclusion. The company was able to align the organizational and individual goals for improved effort on part of the employees. This also helped in improving employee morale and self-esteem as it gave them a sense of contribution and belonging towards the organization. The BSC approach also helped in improving the HR policies and their implementation in the organization. For example, it led to a more organized employee training and development. It also improved the coordination and communication between different groups as everything was done in a planned manner, avoiding any confusion. Many of the organizations that implemented BSC enjoyed breakthrough improvements in performance. BSC was implemented because financial measurements had become insufficient for contemporary organizations. Strategies for creating value had shifted from managing tangible assets to managing knowledge that included an organization's intangible assets, customer relationships, skills and knowledge of the workforce, the information technology that supports the workforce and links the firm to its customers and suppliers and the organizational climate that encourages innovation, problem-solving and improvement. The BSC provides a simple, clear message about organizational strategy that all employees can understand and internalize in their everyday operations. With such understanding, employees can link improvements in their daily processes to the achievement of high-level strategic objectives. Under the BSC framework strategic objectives and measures can be imbedded in a general framework or template, which we call a "strategy map" that complements the BSC with a simple, succinct visualization of the hypothesis and inter-relationships that are at the heart of strategy. The strategy map enables leaders to communicate clearly to employees what business the organization is in, and how it intends to succeed and out-perform its competitors. It articulates the critical elements for a company's growth strategy. Employees become truly empowered by understanding what the organization wishes to accomplish, and how they can contribute to these accomplishments and this understanding generates intrinsic motivation. However, the success of BSC in improving performance depends on a number of factors, the most crucial being the involvement of employees. Change management is always going to be a major challenge in successful implementing of the BSC because it must touch every significant activity in the organization. Since the BSC affects everyone in the organization, it has to confront with the organization's culture. By providing greater openness and visibility to an organization's mission and strategy BSC can provide employees with a better understanding of their jobs and empower them to improve the work process. Thus, participation of employees is the key to successful deployment of BSC Appendices I. BSC- Implementation Process References Andrea Roli, Christian Blum and Dorigo Marco (2001), ACO for Maximal Constraint Satisfaction Problems, Technical Report No. TR/IRIDIA/2001-17, March Axelrod R (1997), The Complexity of Cooperation: Agent-Based Model of Competition and Collaboration, Princeton University Press, New Jersey Banerjee Soumya, Grosan Crina and Abraham Ajith (2005), Intelligent Decision Making for New Product Development and Market Positioning Using Soft Computing, The Icfai Special Issue, Vol. III, No. 04, November. 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