Toyotas Social Initiatives - Case Study Example

Page An Analysis of Toyota's Social Initiatives Table of Contents Page i Table of Contents ii An Analysis of Toyota's Social Initiatives 1 Part One: Theoretical Frameworks 1 Part Two: Social Initiatives of Toyota 4 Part Three: Toyota's Initiative of Caring for the Environment 8 Environmental Management 9 Development and Design 10 Production and Logistics 10 Recycling 10 Other Environment-related Social Initiatives 11 Conclusion 12 Appendix A: Basic Principles and Policies of Social Contribution Activities 13 Appendix B: Guiding Principles at Toyota (The Toyota Way) 15 Figure 1: CO2 Emission and CO2 Emissions per Sales Unit 16 Figure 2: Easy-to-Recycle Materials in the New RAV4 17 Works Cited 18 An Analysis of Toyota's Social Initiatives This three-part paper is a study of how Toyota, one of Wired Magazine's Top 40 for 2007, integrates social initiatives as part of its growth strategy. The first part is a summary of the key theoretical frameworks that have influenced much debate in companies on the usefulness and profitability of integrating social initiatives. The second part looks at the history of Toyota Motors and its corporate principles that guide both its growth strategies and social initiatives. The third part focuses on one of its most influential social initiatives and how this is integrated into the company's growth strategy. Part One: Theoretical Frameworks One of the most important questions that the rise of the modern business corporation has triggered in the minds of men is the following: "What is the purpose of a business" Like the human beings that founded, managed, and grew them, corporations have searched for answers to this basic question on the assumption that doing so would give meaning to their existence, their behavior, and the countless short- and long-term business decisions made each day. The search for an answer is not easy. Why and how does a business begin Usually, some brave soul discovers a need in society that can be met, a product or a service that can be sold either because no one else is selling it or because s/he thinks it can be improved, made more convenient, or sold at a cheaper price. In the process, the person who discovers this unmet need and can supply it to people who are willing to pay the right price becomes rich. The business grows, expands, competes, and then goes public by listing in the stock marketand then what This is where having a business purpose comes in handy, because making money is the easy part (although most start-up businesses fail, not only in America but in any other part of the world). These successful businesses go beyond finding ways to be profitable and try to discover how to spend those profits. At first, companies were happy to share those profits with their managers, employees, and shareholders, but over the years, everyone realized that there were limits to the amount of money one could spend. In their search for a purpose, they came up with several answers. Adam Smith, in his Wealth of Nations, Book III entitled "Of the Natural Progress of Opulence" (Bartleby 2001) entreated private businesses to go beyond profits and create surpluses for export because this would lead to progressive wealth resulting in the improvement of the standard of living and the cultivation of society, a sort of heaven on earth where everyone would be happy. Drucker (1955) argued that the creation of value is the purpose of the organization, and that the purpose of business is to create and keep a customer. Friedman (1962) also emphasized that the social responsibility of business is to increase profits and maximize shareholder return without breaking the law, and that it is not the purpose of business to take care of society. Two prominent thinkers disagreed. Freeman (1984), the pioneer of stakeholder theory, defined (p. 48) stakeholders as "groups and individuals who can affect the organisation" and that "managerial behaviour must respond to those groups and individuals." Freeman argued that a business must go beyond the profit motive and consider the effects the business will have on others outside of it. He was supported by Nobel Laureate Sen (1988), who showed that business and society can substantively enrich and benefit both, and that a business relying solely on its self-interest would lead to inefficiencies due to economic externalities or unintended consequences like a consumer backlash and other factors like catching the ire of government regulators or terrorists. Since then, several management thinkers and practitioners have conducted experiments to show that integrating so-called social initiatives into a company's business strategies can actually help improve profitability. Elkington (1998) formulated the so-called Triple Bottom Line (TBL or 3BL) accounting that called for businesses to report not only on its financial performance but also on its environmental and social performance. This has been adopted by most corporations as a model for their annual reports. Porter and Kramer (2002) argued that 'strategic' philanthropy helps businesses in their quest for profit while at the same time satisfying the self-interests of managers and shareholders. A CEO of a Fortune 500 company, James Burke of Johnson & Johnson, was quoted (Maxwell 15) as claiming that socially and ethically responsible businesses are worth investing in because they are more profitable in the long-term. These are just some of the prominent thinkers and businessmen who have proven that social initiatives in line with the company's business goals can be profitable if properly managed, and that these initiatives can be imaginatively marketed as to create or enhance a positive image for the company that is attractive to employees and customers. This is why jewelers like Rolex, owned by the luxury goods company LVMH, and telecommunications companies like Vodafone support cultural, social, and athletic events worldwide, among many others (LVMH 2006; Vodafone 2006). Toyota, the focus of this paper, is an interesting company because of the way it integrates its social initiatives into its business principles and strategies. What makes it more interesting is that while its auto industry competitors are losing money and market share, Toyota is showing positive results in terms of profitability, marketing share, company image, and over-all corporate growth. Part Two: Social Initiatives of Toyota Toyota's social contribution activities have a long history, with records showing that in 1925, Sakichi Toyoda donated 1 million yen (at 1925 values) to the Imperial Institute of Invention and Innovation to encourage development of rechargeable batteries. Toyoda was the founder of Toyoda Automatic Loom Works, Ltd., the precursor of Toyota Motor Corporation. Kiichiro Toyoda, Sakichi's eldest son and the founder of Toyota Motor Corporation, and others made contributions to society a central aspect of The Toyoda Precepts adopted as principles for the Toyota Group. It was not surprising that Toyota established a Corporate Citizenship Activity Committee (CCAC) in 1998, chaired by the company president, to enhance Toyota's social contribution activities in accordance with societal needs. The committee is the highest level decision-making body concerning social contribution activities and is responsible for discussing and approving medium and long-term and annual social contribution activity policies and budgets and assessing activities. In its latest (2006) annual report, Katsuaki Watanabe, Toyota's president and the Chairman of its CCAC, proudly traced this aspect of the company of conducting business based on the principle of contributing to society's prosperity by "making things". Now that the company enjoys a physical presence as a manufacturer in 27 countries, selling cars and other products in over 170 countries around the world, the company is more involved than ever in the development of prosperous societies through its business activities. In addition to contributing to society by making and selling good quality automobiles, Toyota proactively carries out social contribution activities related to (1) the environment, a fundamental and global issue; (2) traffic safety, an area that cannot be isolated from Toyota's core business, and (3) human resources development to prepare tomorrow's leaders. To consolidate the knowledge and creativity of Toyota people in Japan and other countries, it conducts dialogues with a global network of its workers, customers, and advisers to create new value and contribute to social development. Toyota is guided by what it calls The Basic Principles and Policies of Social Contribution Activities, originally adopted in 1995 and revised in April 2005 (see Appendix A). These principles and policies are inspired by the Guiding Principles at Toyota (The Toyota Way) as its contribution towards sustainable development and are intended to clarify the objectives of Toyota's stance concerning social contribution activities as well as the scope of those activities. The central theme of the principles is "creating a prosperous society and achieving sustainable development." This fundamental notion is shared throughout Toyota's global operations. Its foundation, the Seven Guiding Principles at Toyota (the latest version of The Toyota Way adopted in 1992 and revised in 1997), reflect the kind of company that Toyota seeks to be in light of the unique management philosophy, values, and methods that it has embraced since its foundation (see Appendix B). Comparing the contents of Appendix A with the principles in Appendix B will show that both are consistent and in parallel, which indicates that in theory, at least, its corporate principles guide the company in carrying out its social initiatives. This in turn reinforces the corporate principles and result in increased profits. As would be discussed in the third part of this paper, Toyota succeeds because of the way it executes its plans through the help of its Japanese management system of consensus and its engineering and production efficiencies. Toyota began seeing the importance of mixing business profits and social activities after it established the Toyota Foundation in 1947, one of the pioneering corporate foundations that mixed these two objectives of making profits and sharing these with society. The foundation's activities made good business sense, which was greatly reinforced in the 1960s as the company grew with Japan's post-War economic miracle. Noticing the increase in traffic congestion, it donated wideband traffic signal control devices to the government and local communities (Toyota 2007). More cars meant more traffic accidents, which gave a bad message to potential car buyers, so Toyota launched a Traffic Safety Campaign in 1969. In 1976, as environmentalists began using high fuel prices and the polluting effects of gas-powered vehicles, Toyota organized the Fureai Green Campaign to improve awareness of these issues and to send the public a message that the company is doing what it can to keep the air clean. In 1981, the Toyota Community Concerts was launched as a social contribution to cultural development all over Japan. In all these, and in the many social initiatives launched in the 1990s and 2000s, Toyota has been aware that without the understanding and support of society, no company can develop and their very existence may be at risk. Ranked Number 12 in this year's Wired 40 (Wired 2007), Toyota is recognized as one of the most innovative and imaginative companies in the world. This description is obviously deserved by the company not only because it comes out with cool products, but also because it is highly innovative in responding to social issues and concerns, coming out with products that meet both sets of needs - profits and social responsibility - that contribute to the bottom line. There are many ways of classifying Toyota's social initiatives that are so interconnected that it would not be possible to focus on only one of them. For example, one way is dividing initiatives with Employees and Customers, which also includes its shareholders as it does in its annual report. Another is to classify initiatives according to the goals of (1) Caring for the Environment, (2) Community Development, and (3) Philanthropy. Guided by Principle 3, its environmental initiatives enable the company to aim for growth that is in harmony with the environment throughout all areas of business activities. The company achieves this by developing, establishing, and promoting technologies that allow the environment and economy to co-exist harmoniously and to build close and cooperative relationships with a wide spectrum of individuals and organizations involved in environmental preservation (Toyota 2007). Guided by Principle 2, Toyota implements its philosophy of 'respect for people' by honoring the culture, customs, history, and laws of each country. The company achieves this by building museums, sponsoring artistic and cultural activities, and supporting education projects. Guided by Principles 3 and 4, Toyota constantly searches for safer, cleaner, and superior technology to develop products that satisfy the evolving needs of society for sustainable mobility. And guided by Principle 1, Toyota does not tolerate bribery of or by any business partner, government agency or public authority, with which it also maintains honest and fair relationships. Guided by Principle 2, wherever it conducts business Toyota actively promotes and engages, both individually and with partners, in philanthropic activities that help strengthen communities and contribute to the enrichment of society. It is this integrated approach guided by its core principles that allows Toyota to execute its social initiatives that cuts through several activities, ranging from sponsoring concerts to designing automotive products that are remarkable for their cutting edge technologies while contributing to the sustainability of the environment and the building up of its surrounding communities (Toyota 2007). Since the company, notably Principle 6, searches for harmony in everything that it does, every activity considers the impact it would have on its stakeholders and over-riding goals. A product like the Toyota Prius, for example, currently the most successful hybrid automobile in its class in the world, reflects Toyota's efforts to carry out social initiatives addressed to the care for the environment, the development of the community, and the welfare of its workers and customers. Toyota's guiding principles affects everything from the car design to its marketing and sales. It is this successful integration of business and social initiative that makes Toyota special among all other car manufacturers. How Toyota successfully manages this integration would be shown in the next section, which focuses on the company's social initiatives that benefit the environment. Part Three: Toyota's Initiative of Caring for the Environment Toyota did not design the Prius by accident. According to Fortune (Taylor 52), Toyota began developing the concept for the car in the 1980s, when its competitors like GM began talking about electric cars. Using its research department, Toyota talked to customers, dealers, and scientists over the last twenty years to develop the hybrid-powered Prius, which premiered in 2004 during that year's Oscar Awards. It was the launching of a car that traces its model pedigree to Toyota's first part-electric, part-gas powered vehicles built in 1997. Capturing America's (and the World's) concern for the environment, the Prius had the powerful effect of solidifying the company's image as a clean-car company. This is why although the Prius accounts for only 5% of U.S. sales, selling a total of 390,000 in the last three years (Duncan 24), the company has won a considerable amount of good publicity with the product, allowing Toyota to sell more cars at higher profits, in the process building more market share after it took over Ford in 2003 as the world's second largest car company as measured in sales. Two factors allowed Toyota to enjoy a high level of success. The first is the Japanese management style, which accounts for slow decision-making (it took two decades to roll the Prius off the assembly line) but for quick and consistent execution. Not only is Toyota selling more cars, but it is likewise incorporating its environment-friendly technology to its traditionally gas-guzzling Lexus luxury cars and Tundra pick-up trucks. The Japanese management style is slow because nothing moves (agreements on product features, efficiencies, etc.) unless and until the top management totally agrees on a course of action. The second factor is Toyota's efficient manufacturing and supply chain systems. Its effort to further improve the already-high efficiency of its plants is another remarkable example of integrated implementation of social initiatives. It constantly upgrades its plants to reduce emissions, promote speed and flexibility, and cut down on waste. It developed the idea of Just-in-Time (JIT) production and inventory control (Ohno 18-19) from Ford Motor Company and American supermarkets in the 1950s and perfected it for use in automobile manufacturing. The company's concern for the environment goes beyond designing and producing hybrid and fuel-efficient cars but extends to its system of production, inventory control, and managing waste materials, although some critics claim that frequent delivery trips to meet JIT targets may have the net result of increased pollution and traffic (Lomborg 201; Rischard 122). It also conducts many other programs and activities that support the company's environmental care initiatives. Toyota outlines in its latest report (2006: 54) how it manages the initiative's four aspects: Environmental Management It comes up with regular Environmental Action Plans, which consists of goals related to the integration of its guiding principles for sustainable development with its business activities. Toyota established Environment Committees in all continents to manage and execute on these initiatives (Europe in 2004, North America in 2005, and South America in 2007) and to reinforce environmental activities by its affiliates to ensure these are consistent with over-all goals. It also established the Corporate Citizenship Division in January 2006 to coordinate Toyota's global social contribution activities and promote strategic and efficient activities. Development and Design It established Fuel Efficiency Standards in all vehicle weight categories and achieved the 2010 standards (Figure 1) ahead of schedule, claiming that the percentage of total production that meets the Ultra-Low-Emission Vehicle standards reached 96% by 2006. It introduced the hybrid Lexus in March 2006 and reached total worldwide sales of hybrid vehicles of 600,000 units. Production and Logistics In 2006, the company 'almost' attained strict goals for reducing CO2 emissions and reduced volatile organic compound (VOC) emissions by converting to the use of water-based paints for the top coating (base coat) on all automotive lines in Japan. In the same year, it also defined and expanded to all its affiliates the Toyota Environmental Management System (Toyota-EMS) to make it compatible and consistent with the Toyota Way (the Seven Guiding Principles). Recycling Toyota steadily implemented measures to recycle or recover automobile shredder residue (ASR) and recover airbags and other chemicals and refrigerants such as CFCs and HFCs from end-of-life vehicles to comply with Automobile Recycling Laws. It also incorporated new designs for recycling into new models, so that in the future its cars would be more economical to recycle and would not produce as much toxic waste. Figure 2 shows a schematic of the amount of recyclable materials are estimated for its new models. It reduced the usage of four toxic substances at Toyota operations worldwide, developed new practical dismantling technologies and marketed them widely to its affiliates, increased the number of vehicles in which Recycled Sound-Proofing Products (RSPP) were used to 10 million, and promoted the collection and recycling of batteries from end-of-life hybrid vehicles. Other Environment-related Social Initiatives The company developed and constantly revises its "Toyota Green Purchasing Guidelines" to guide suppliers in the choice and use of materials that are consistent with over-all goals, which also includes funding for training and education activities, research programs, and exchange of best practices among workers of supplier companies. It also established Environment Care classrooms in Poland, China, and several Southeast Asian countries, financed the Toyota Living Stream program in the U.S., and donated funds for the Greening of the Galapagos in Ecuador. It opened the Toyota Shirakawa-Go Eco-Institute in 2006 that acts as a showcase for its environment projects worldwide to educate visitors and schoolchildren on its efforts to care for the globe. All these efforts help towards enhancing the company's positive image as a 'green' company that thinks of the benefits for future generations, not only in Japan but in developing countries where multinational corporations have been criticized for destroying communities and environments. And to cap another fruitful year, the company held a Toyota Stakeholder Dialogue with "Corporate Social Responsibility (CSR) - Focusing in (sic) the Environment" as its theme. Conclusion Toyota's social initiative to care for the environment is not merely an opportunistic show that markets the company's social concerns while negating these with products that are contradictory in nature and function. Toyota walks the talk, coming out with products that are innovative not only in its technology but, more importantly, in the way these integrate the social initiative principles that it supports, from the way these products are made to the way they are recycled as scrap at the end of their useful lives. The company likewise carries out a constant process of education and promotion for the benefit of its employees, suppliers, and customers, achieving the harmony of everyone with everything that is one of the key driving forces for carrying out its social initiatives. Toyota is successful perhaps, not just because its customers love a company that has become more attractive through the years, but because its workers are driven by the social initiatives to be passionate about their work. Toyota's workers are in harmony with a management practicing what it believes in and that extends all the resources, sparing no expense, to create vehicles that enrich the lives of people by minimizing the negative aspects of cars, such as environmental burdens and traffic accidents, while maximizing the positive aspects, such as driving pleasure and comfort. There is no doubt that the company's social initiatives, by helping achieve these goals and inspiring its workers to be productive and caring, contributes to Toyota's growth and profitability in a competitive world. Appendix A: Basic Principles and Policies of Social Contribution Activities Purpose We in the Toyota Group will undertake philanthropic activities to contribute to sustainable social vitality. 1-1:Recognizing that sustainable social vitality is crucial to our corporate growth and survival, we will strive to maximize our contribution to that vitality through philanthropic activities, as well as through our business operations. 1-2: We will demonstrate good corporate citizenship in each community where we operate by addressing the social needs and issues unique to that community. 1-3: We will accompany our local philanthropic activities with global initiatives commensurate with the global scope of our business. Stance We will maximize the benefits of our philanthropic activities by working with partners; by using our resources effectively; and by concentrating on initiatives that address real social needs. 2-1: We will strive to help resolve basic social issues, and our efforts will include fostering human resources capable of contributing to social vitality. 2-2: We will undertake philanthropic activities in cooperation with diverse partners, and our public-interest initiatives will draw on the skills, expertise, and technologies that we have accumulated through our business activities. 2-3: Our partners in philanthropy will include local community representatives and nonprofit and nongovernmental organizations that share our goals, and we will shape our philanthropic activities to make the most of each partner's strengths. Employee Participation We will support independent philanthropic activities that our employees undertake as members of the community. 3-1: We regard voluntary employee participation in philanthropic activities as beneficial for the community and for employees' personal development. 3-2: We will establish programs for encouraging employees to take part in philanthropic activities and for supporting their participation. Information Disclosure We will disclose information about our philanthropic activities. 4: We will disclose information freely to demonstrate transparency in our philanthropic activities and to share our expertise and experience with the community. Global Perspective We will adopt a global perspective on philanthropic activities while adapting our activities to needs and circumstances in each nation and region where we operate. 5: In the spirit of contributing to sustainable social vitality, we will evaluate social needs in each nation and region where we operate, and we will shape our philanthropic activities to maximize their contribution to fulfilling those needs. [Source: Annual Report 2006: 52-53] Appendix B: Guiding Principles at Toyota (The Toyota Way) [1.] Honor the language and spirit of the law of every nation and undertake open and fair corporate activities to be a good corporate citizen of the world. [2.] Respect the culture and customs of every nation and contribute to economic and social development through corporate activities in the communities. [3.] Dedicate ourselves to providing clean and safe products and to enhancing the quality of life everywhere through all our activities. [4.] Create and develop advanced technologies and provide outstanding products and services that fulfill the needs of customers worldwide. [5.] Foster a corporate culture that enhances individual creativity and teamwork value, while honoring mutual trust and respect between labor and management. [6.] Pursue growth in harmony with the global community through innovative management. [7.] Work with business partners in research and creation to achieve stable, long-term growth and mutual benefits, while keeping ourselves open to new partnerships. [Source: Annual Report 2006: 52-53] Figure 1: CO2 Emission and CO2 Emissions per Sales Unit [Source: Annual Report 2006: 54] Figure 2: Easy-to-Recycle Materials in the New RAV4 [Source: Annual Report 2006: 54] Works Cited Bartleby. Wealth of Nations. The Harvard Classics.1909-14. Book III. Of the natural progress of opulence. Smith, Adam. Wealth of Nations, edited by C. J. Bullock. Vol. X. New York: P.F. Collier & Son, 1909-14, 2001. 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