System Analysis of Toyota Motor Corporation

System Analysis of Toyota Motor Corporation

The Toyota logo is comprised of three ellipses,

representing the heart of the customer,

the heart of the product,

and the ever expanding technological advancements

and opportunities that lie ahead.

Old Dominion University

Engineering Management and Systems Engineering Department

ENMA 601- Analysis of Complex Organizations

End of Term Group Project

Fall 2008

By:

http://www.toyota.com/

Group 2 ENMA 601 Fall 2008

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Table of Contents Table of Figures .............................................................................................................................. 3

Table of Tables ............................................................................................................................... 3

Introduction ..................................................................................................................................... 4

Part I Output Analysis ..................................................................................................................... 7

Organizational Effectiveness ...................................................................................................... 7

Customers ................................................................................................................................... 7

Business and Financial Indicators ............................................................................................. 10

Employee Engagement ............................................................................................................. 12

Innovation ................................................................................................................................. 12

Societal ...................................................................................................................................... 14

Education .................................................................................................................................. 15

Safety ........................................................................................................................................ 15

Community ............................................................................................................................... 15

Part II: External Business Environment Analysis ......................................................................... 15

Economic Characteristic of the Industry................................................................................... 16

Forces Driving Change in the Industry ..................................................................................... 17

Energy/Environment Issues ...................................................................................................... 17

Emerging Markets ..................................................................................................................... 17

Globalization ............................................................................................................................. 18

Competitive Forces in the Industry ........................................................................................... 18

Emerging Low Cost Automakers.............................................................................................. 18

Small Start-up Eco Companies ................................................................................................. 19

Opportunities............................................................................................................................. 19

Threats....................................................................................................................................... 20

Rising Raw Material Prices ...................................................................................................... 20

Declining Demand for Light Vehicles in the US ...................................................................... 20

Tightening Emission Standards ................................................................................................ 21

Keys to Competitive Success .................................................................................................... 21

Part III Inputs and Internal Business Environment Analysis ........................................................ 22

Organizational Culture .............................................................................................................. 22

Mission, Values and Structure .................................................................................................. 22

Mission/Purpose ........................................................................................................................ 22

Core Values, Philosophies and Principles ................................................................................ 24

Organizational Structure ........................................................................................................... 24

Specific Goals and Objectives .................................................................................................. 25

Part IV Transformational/Execution System ................................................................................ 25

Reward System ......................................................................................................................... 26

Team Design ............................................................................................................................. 26

Human Resource Systems......................................................................................................... 27

Shared Leadership/Decision-Making ........................................................................................ 28

Technologies ............................................................................................................................. 29

Part V Problem Statement ............................................................................................................. 30

Part VI Alternatives and Specific Recommendations ................................................................... 30


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Growth ...................................................................................................................................... 31

Globalization ............................................................................................................................. 31

Training ..................................................................................................................................... 32

References ..................................................................................................................................... 33

Table of Figures Figure 1: Our Approach to Organizational Analysis ...................................................................... 4

Figure 2: A “4 P” Model of the Toyota Way .................................................................................. 6

Figure 3: 2008 Initial Quality Study ............................................................................................... 9

Figure 4: Market Share ................................................................................................................. 10

Figure 5: Toyota’s Consolidated Financial Performance ............................................................. 10

Figure 6: Ford’s Consolidated Financial Performance ................................................................. 11

Figure 7: General Motors’ Consolidated Financial Performance ................................................. 11

Figure 8: Profile of the Toyota Industries Group.......................................................................... 11

Figure 9: Toyota’s Innovation Timeline Compared to Most Organizations................................. 13

Figure 10: Global Production of Cars and Light Trucks .............................................................. 16

Figure 12: Corporate Organizational Chart .................................................................................. 24

Figure 13: Corporate Vision 2010 ................................................................................................ 25

Figure 14: Typical Toyota Organization – Assembly Operation.................................................. 27

Table of Tables Table 1: Principles of the Toyota Production System .................................................................... 6

Table 2: World’s 50 Most Innovative Companies ........................................................................ 14

Table 3: Toyota vs. Ford Mission Statements .............................................................................. 23


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Introduction

This paper will perform a systems analysis of the Toyota Motor Company for the

purpose of providing insights and understanding of Toyota’s organization with a focus

on uncovering any current adverse situations or problems that Toyota may be facing.

Recommendations to overcome the discovered problems will be discussed and offered

at the conclusion of this report.

The analytical approach used in this document is to consider the organization

under review as a system. This system is composed of interacting elements that take

inputs from the environment, go through some sort of transformational process with

these inputs and produce an output back into the environment. Figure 1 below depicts

a detailed breakdown of what sub-elements and components comprise the input,

transformation, and output stages of this system level model of an organization. For

this paper, not all of these sub-elements of the company being analyzed were

examined. This was due primarily to the inability to obtain the exact information from

the company and the relatively short period of time to perform this analysis.

Figure 1: Our Approach to Organizational Analysis

From Pazos, Pillar (2008). ENMA 601 Analysis of Complex Organizations Lecture Module 2


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Toyota is headquartered in Tokyo, Japan; it is the second largest automobile

manufacturer in the world. The company engages in the design, manufacture,

assembly, and sale of passenger cars, minivans, trucks and related parts and

accessories. Toyota does not offer eye-popping car designs or high performance street

cars; rather Toyota distinguishes itself from the competition by the way it engineers and

manufactures automobiles. Their way results in unbelievable consistency in the process

and product (Liker, 2004). Toyota is able to design autos faster, with more reliability, at

a competitive cost, while maintaining relatively high wages for its workers (Liker, 2004).

The question that many books, articles and much debate have focused on: What is the

secret to Toyota’s success? Jeffrey Liker (2004) accurately and concisely describes

what is regarded as the reasons for Toyota’s exemplar performance:

“The incredible consistency of Toyota’s performance is a direct result of operational excellence. Toyota has turned operational excellence into a strategic weapon. This operational excellence is based in part on tools and quality improvement methods made famous by Toyota in the manufacturing world, such as just-in-time, kaizen, one-piece flow, jidoka, and heijunka. These techniques helped spawn the “lean manufacturing” revolution. But tools and techniques are no secret weapon for transforming a business. Toyota’s continued success at implementing these tools stems from a deeper business philosophy based on its understanding of people and human motivation. Its success is ultimately based on its ability to cultivate leadership, teams, and culture, to devise strategy, to build supplier relationships, and to maintain a learning organization.” (Liker, 2004, p.6)

There are 14 principles that compose the foundation of the Toyota Production

System (TPS) employed at Toyota manufacturing plants around the world. Table 1 lists

these 14 TPS principles on the following page. Figure 2 represents what Liker (2004)

describes as the “4 P” principles of what he described as “The Toyota Way”.


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Figure 2: A “4 P” Model of the Toyota Way

From Liker, Jeffery K. (2004). The Toyota Way, New York: McGraw-Hill, p. 6.

Table 1: Principles of the Toyota Production System Table From Liker, Jeffery K. (2004). The Toyota Way, New York: McGraw-Hill, p. 37

Principles of the Toyota Production System

1. Base Your Management Decisions on a Long-Term Philosophy, Even at the Expense of Short-

Term Financial Goals.

2. Create Continuous Process Flow to Bring Problems to the Surface.

3. Use “Pull” Systems to Avoid Overproduction.

4. Level Out the Workload (Heijunka).

5. Build a Culture of Stopping to Fix Problems, to Get Quality Ringht the First Time.

6. Standardized Tasks Are the Foundation for Continuous Improvement and Employee

Empowerment.

7. Use Visual Control So No Problems Are Hidden.

8. Use Only Reliable, Thoroughly Tested Technology That Serves Your People and Process.

9. Grow Leaders Who Thoroughly Understand the Work, Live the Philosophy.

10. Develop Exceptional People and Teams Who Follow Your Company’s Philosophy.

11. Respect Your Extended Network of Partners and Suppliers by Challenging Them and Helping

Them Improve.

12. Go and See for Yourself to Thoroughly Understand the Situation (Genchi Genbutsu).

13. Make Decisions Slowly by Consensus, Thoroughly Considering All Options; Implement Decisions

Rapidly (Nemawashi).

14. Become a Learning Organization Through Relentless Reflection (Hansei) and Continuous

Improvement (Kaizen).


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Throughout this document the 14 principles of the Toyota Production System will

be referred to and used to describe the processes, subsystems, and beliefs that the

Toyota Motor Company utilizes, is composed of and adheres to. Their system allows

them to design and manufacture automobiles that are arguably of the highest standard

in the world.

Part I Output Analysis

Organizational Effectiveness

This part of the system analysis will address the organizational effectiveness of

the Toyota Motor Company. For this analysis, the effectiveness of the company will be

assessed with respect to the transformed outputs of the company and how they

compare to other major global companies in the automotive manufacturing industry and

to other global exemplar companies. The output factors that will be examined are

customer satisfaction in the products produced, business and financial indicators such

as revenues, employee engagement, innovation, and Toyota’s involvement in its

societal responsibility as a major global corporation. The results of these categories

conclude that Toyota is an exemplar, high performing organization. Toyota is

committed to its customers, employees, innovation, and society, and the output of the

company confirms they are achieving exceptional results in these categories. As a

result of their performance in these areas, they are also experiencing great financial and

business success in a highly competitive and fluid industry.

Customers

Toyota’s line of cars has received favorable customer satisfaction reviews for its

quality, fuel efficiency, and price. Toyota has also earned many awards based on the

satisfaction of customers and the reviews of independent firms. The following is a list of

awards Toyota has received this year (J.D. Power and Associates, 2008).

In the Initial Quality category:


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Best large multi-activity vehicle - Toyota Sequoia

Best large premium car - Lexus

Best midsize premium multi-activity vehicle - Lexus RX

In the Performance and Design category:

Best compact and multi-activity car - Toyota FJ Cruiser


In the Vehicle Dependability category:

Best compact car - Toyota Prius

Best compact multi-activity vehicle - Toyota RAV 4


Best large pick up - Toyota Tundra

Best large premium car - Lexus LS430

Best large premium multi-activity vehicle - LEXUS LX470

Best midsize multi-activity vehicle - Toyota Highlander

Best midsize premium multi-activity vehicle - Lexus GX470

Best premium sport utility - LEXUS SC 430

These awards, along with Toyota’s sales figures, give a fair account of Toyota’s

popularity with the customers. Toyota Prius, the world’s first hybrid car, has received

many awards from all round the world. The Swiss government named Prius as the

world’s greenest car in a draft study of over 6000 cars. The Prius has also been

distinguished with these awards (Toyota, 2008):

Japanese Car of the Year, 1997-98.

Motor Trend Car of the Year, 2004.

North American Car of the Year, 2004.

International Engine of the Year, 2004.

SAE’s Automotive Engineering International Magazine Best Engineered Vehicle, 2004.

European Car of the Year, 2005.

EnerGuide Award (midsize), 2006.

Intellichoice Best Overall Value of the Year (midsize), 2006.

Intellichoice Best in Class Winner: Best Retained Value, Lowest Fuel, Lowest Operating Cost, 2007.


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International Engine’s Green Engine of the Year, 2008.

JD Power and Associates’ Most Dependable Compact Car, 2008.

Figure 3: 2008 Initial Quality Study From J.D. Power and Associates website

http://www.jdpower.com/corporate/pdf/?file=/corporate/news/releases/pdf/2008063.pdf


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Business and Financial Indicators

Market share and revenue are fairly accurate indicators of a company’s success

and impact in the market place. Toyota is holding firm to its share of the market and

striving to gain a larger share. As seen in Figure 4, they are challenging General

Motors to become the world’s largest automobile manufacturer. Toyota has also

experienced huge success in the last couple years compared to their American

competitors who have struggled mightily. As shown in Figures 5, 6, and 7, while

General Motors and Ford are losing money and laying off workers, Toyota is increasing

their bottom line and their number of employees (see Figure 8 below).

Major Player Market Share Range

General Motors Corporation 10.5% (2007)

Toyota Motor Corporation 10.3% (2007)

Ford Motor Company 8.2% (2007)

Volkswagen AG 6.6% (2007)

Honda Motor Co., Ltd. 5.5% (2007)

Nissan Motor Co., Ltd. 5.1% (2007)

Other 53.8% (2007)

Figure 4: Market Share

Worldwide Automobile Market share, IBIS Global Auto Report (2008)

Year

Million Dollars

Revenue Percent Growth

Million Dollars

Income Percent Growth

Units

Employees

2003 128965 N/C 6247 N/C 264096

2004 163637 26.9% 10995 76.0% 264410

2005 172749 5.6% 10907 -0.8% 265753

2006 179083 3.7% 11681 7.1% 285977

2007 202864 13.3% 13927 19.2% 299394

2008 262394 29.3% 17146 23.1% N/A

Figure 5: Toyota’s Consolidated Financial Performance


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Year

Million Dollars


Million Dollars

Income Percent Growth

Units

Employees

2002 163420 N/C -980.0 N/C 350321

2003 165066 1.0% 495.0 -150.5% 327531

2004 171652 4.0% 3487.0 604.4% 324864

2005 176896 3.1% 1440.0 -58.7% 300000

2006 160123 -9.5% -12613 -975.9% 283000

2007 172455 7.7% -2723 -78.4% 246000

Figure 6: Ford’s Consolidated Financial Performance

Year

Million Dollars


Million Dollars

Income

Units

Employees

2002 186763 N/C 1736 350000

2003 185524 -0.7% 3822 326000

2004 193517 4.3% 2804 324000

2005 192604 -0.5% -10567 335000

2006 207349 7.7% -1978 280000

2007 181122 -12.6% -38732 266000

Figure 7: General Motors’ Consolidated Financial Performance Figures 5-7 from IBIS Global Auto Report (2008)

Figure 8: Profile of the Toyota Industries Group Diagram from Toyota Industries Corporation Social and Environment Report (2007)


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Employee Engagement

An employee that is engaged can be described as a person who is fully involved

and enthusiastic about work. Engaged employees are emotionally connected to the

organization and are cognitively vigilant (Seijts & Crim, 2006). There are several

workplace practices that management can undertake that lead to employee’s

engagement. Among these practices are making sure employees feel their input is

always valued and that they work with people that can be trusted (Crabtree, 2005). An

example of Toyota encouraging and valuing employee input is evidenced by company

records in 1989 which documented 1,960,786 suggestions worldwide were submitted in

the Toyota enterprise with 97% of these suggestions being adopted. This indicates

approximately 34.8 suggestions per person; in fact workers who make only a few

suggestions are given warnings (Winfield, 1994). The practice of Toyota welcoming

and even requiring employee suggestions is commendable, but the fact that 97% of

these suggestions are implemented truly shows the extent that employee input is

valued. These actions of encouraging and acting upon employee suggestions

undoubtedly give the employees a strong sense of engagement and a direct connection

to the company.

Innovation

Toyota is widely regarded as one of the world’s most innovative companies,

although Toyota’s approach to innovation is not the typical quantum leap of progress

that is associated with innovation. Rather, Toyota takes a constant and methodical

approach to innovation, considering it as an extension of their never-ending quest for

quality and, ultimately, for perfection. James Surowiecki (2008) describes Toyota’s

innovation in this way:

“….if Toyota doesn’t look like an innovative company it’s only because our definition of innovation – cool new products and technology breakthroughs, by Steve Jobs-like visionaries – is far too narrow. Toyota’s innovations, by contrast, have focused on process rather than product, on the factory floor rather than on the showroom. That has made innovations hard to see. But it hasn’t made them any less.” (Surowiecki, 2008)


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It is reported that Toyota implements a million new ideas a year, with most of

them coming from production workers (May, 2006). While most of these ideas may be

minor in nature, it demonstrates Toyota’s relentless pursuit of quality and efficiency,

where everyday they learn and are capable of doing things a little better (Surowiecki,

2008). Toyota uses innovation as a process applied daily to achieve their goals of

quality and customer satisfaction, while most companies view innovation as a means to

instantly leap frog the competition and increase profit and wealth.

Toyota’s approach may be mundane, but they have also achived great success

with their visonary research and development of hybrid technology. In addition, Toyota

is pursuing other innovations in automotive technologies. These include:

• Design for the environment (DFE)

• Synergy Drive hybrid car technology

• Partial zero-emissions vehicle system for gasoline-powered vehicles

While other companies may need to constantly find and develop innovation to stay

ahead of the competion, Toyota does not need innovative products to stay competetive

in the automobile industry. Figure 6 represents a nonquanitiative analogy of how

Toyota’s innovation philosophy differs from other companies, and how their relentless

innovative drive achieves grearter results than other companies.

Figure 9: Toyota’s Innovation Timeline Compared to Most Organizations

Diagram based on The Elegant Solution, Toyota’s Formula for Mastering Innovation

(May, 2007)


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Table 2 reflects the high regard Toyota is held in when it comes to innovation.

Not only is Toyota considered the most innovative company in its field, but it is also

recognized in Business Week magazine’s 2006 annual report of the world’s most

innovative companies. Toyota is shown in the number 3 position.

Table 2: World’s 50 Most Innovative Companies

Table from Business Week “The World’s 50 Most Innovative Companies,” Business

Week, (April, 2006, p.62).

Business Week Most Innovative Companies (2006)

Rank Company

1 Apple

2 Google

3 Toyota

4 General Electric

5 Microsoft

6 Tata Group

7 Nintendo

8 Procter and Gamble

9 Sony

10 Nokia

Societal

Like many other large companies, Toyota places emphasis on corporate social

responsibility. But Toyota ensures that their social aspect is strategic in nature to

benefit the community and the company. As a company, Toyota believes that “an auto

company can also be made a vehicle for change” (Toyota, 2008). That is the reason

behind Toyota’s support of programs focusing on education, environmental, and safety

initiatives that help strengthen the communities where their employees live and work.

Toyota has shown strategic philanthropy in the following areas (Toyota, 2008):


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Education

Toyota gives back to their local and national communities by offering programs

and scholarships that support and enable educational goals to be realized. These

programs include literacy and adult learning programs. Scholarships that Toyota

awards every year are: Toyota Community Scholars, Marine Corps Scholarship Fund,

National Future Farmers of America, United Negro College Fund, African American

Initiative For Math/Science, and Hispanic Scholarship Fund.

Safety

Toyota is concerned with all aspects of safety, from ensuring the quality of their

vehicles to promoting the safe operation of them. Toyota sponsors and supports the

following safety programs: Toyota Teen Driver Program, Mothers Against Drunk Diving,

and Toyota Driving Expectations.

Community

Toyota benefits from improving the community where their employees live and

work. Community activities and organizations that Toyota supports are: Toyota Blue

Grass Miracle League, The United Way, the YMCA, and Central Kentucky Riding for

Hope, The Earth Day Network, National Audubon Society, National Multiple Sclerosis

Society, National Arbor Day Foundation, The Nature Conservancy, Tree Peoples Eco

Tours, Toyota Family Literacy Program, National Underground Railroad Freedom

Centre, The Doe Fund, The Urban League, Martin Luther King Memorial Fund, and

Kentucky Center Of African American Heritage.

Part II: External Business Environment Analysis

Toyota and the rest of the automobile industry are being heavily impacted by the

global economic down turn. But unlike their American competitors, Toyota has

positioned itself to successfully push through this lull. With emphasis on efficiency and

alternative fuel/hybrid technology, Toyota’s outlook is good even when the industry’s

outlook is bleak; but there are areas of concern in the existing and emerging

environments to which Toyota must address and adapt.


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Economic Characteristic of the Industry

The automobile industry has seen a steady decrease in growth of the number of

automobiles produced over the past five years. The economic slow down in the

traditional large automobile countries has been the main reason for this. However, over

this same period of time, the industry has produced and sold more cars to Russia, India,

China, South America, and other emerging countries than ever before.

Year

Million

Number Percent Growth

2003 58.4 N/C

2004 61.8 5.8%

2005 63.9 3.4%

2006 66.4 3.9%

2007 67.2 1.2%

2008 67.5 0.4%

Figure 10: Global Production of Cars and Light Trucks Figure from IBIS Global Auto Report (2008)

As the production growth rate has decreased, so has the industry revenue

growth rate. The trend and outlook shown in Figure 11 are not optimistic for a quick

turn around either. And the news of GM’s, Ford’s, and Chrysler’s struggles and

uncertainties even in the immediate future will continue to slow the overall industry

growth rates.

Revenue

Revenue Growth Rate

Figure 11: Global Automobile Industry Revenue and Outlook

Figure from IBIS Global Auto Report (2008)


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Forces Driving Change in the Industry

There are several forces that will influence the direction of the automobile

industry, and manufacturers must adapt and change their products and organizations in

response to these forces.

Energy/Environment Issues

Governments in Europe, the U.S., and worldwide are aggressively legislating and

mandating the reduction of greenhouse gasses and the desire to reduce reliance on oil

(Reed, 2008). Industry sources estimate that the U.S. market for hybrid vehicles or

clean diesel engines will be greater than 11% of the total market by 2012 and sales of

hybrid vehicles will rise from the 83,000 in 2004 to three million by 2015 (IBIS World

Industry Report, 2008). Making cars cleaner will cost automobile companies billions of

dollars and some carmakers that are already on the verge of financial ruin will not be

able to invest in this area, but ones that make the right investment choices now to

produce more fuel-efficient vehicles in styles customers desire will be able to weather

the difficult economic times and prosper (Reed, 2008). Toyota has positioned itself as a

leader in hybrid technology and this should make long-term financial sense for the

company.

Emerging Markets

While the economies of Western Europe, Japan and the U.S are expect to grow

only 3% per year in the 2009-2013 time period, close to double digit growth is expected

in the developing regions such as China, Latin America, India, South East Asia and

Eastern Europe (IBIS World Industry Report, 2008). Automobile manufacturers must

realize this potential and change car design to match the customer requirements in

these regions. These emerging markets are becoming a force transforming the industry

(Reed, 2008).


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Globalization

The trend towards greater and more effective globalization within the automobile

industry is expected to cause major changes in design and production of future

automobiles. The most recent IBIS World Report states:

“…major automobile manufacturers have rapidly adapted to the needs of individual markets, not only by shifting production to those markets but also by forging extensive alliances with overseas manufacturers. Various forms of partnership exist between Japanese, U.S. and European automakers, including capital and technical tie-ups, joint R&D and production operations and cooperative sales ties; and such arrangements are expanding yearly.” (IBIS World Industry Report, 2008, p. 18)

Many European and Japanese car manufacturers are utilizing low-cost

engineering talent at research and development centers from Bangalore to Beijing;

partnerships with companies like India’s Mahindra & Mahindra and Bajaj tap into their

local networks and help automakers get cost savings from them (Reed, 2008). The

auto industry must adapt to these globalization workforce changes and take advantage

of these cost savings and available resource benefits.

Competitive Forces in the Industry

The automobile design and manufacturing industry is a highly competitive global

market that has numerous competitive forces that are affecting the market. For this

analysis, two strong competitive forces in the automobile industry that Toyota must be

aware of are detailed.

Emerging Low Cost Automakers

While emerging countries may offer opportunities to the established automakers,

there is also the potential for increased competition from emerging automakers in

countries such as China and India (Reed, 2008). Tata Motors of India has captured

great interest with its development of the Nano – the world’s cheapest four door car.

While China’s automobile companies SAIC and Chery Automobile are potential low cost


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emerging market alternative cars. The big global auto companies must consider the

potential growth of these low cost automakers and their ability to capture large portions

of the emerging countries’ market share. It is unlikely these automakers will, in the near

future, become major exporters of autos, but they will be competitive factors fighting for

market share in the emerging countries (Reed 2008).

Small Start-up Eco Companies

The global demands to reduce greenhouse gases, mainly emanating from

gasoline powered personal automobiles, and the desire by many countries to reduce

their reliance on foreign produced oil, has resulted in several small high-tech start-up

companies. Each of these companies is in pursuit of the next generation car, which will

be Eco friendly and utilize alternative energy sources. The list of these companies

includes, Tesla, Lighting Car Company, Fisker, and Carbon Motor (Huffman 2008). If

successful in their attempts to find an acceptable cost effective alternative to the

gasoline powered automobile, a major revolution in personal automobiles is possible. It

is possible one of these small start-up companies could be the next Apple, Google, or

eBay. The major automakers must realize this competitive reality and either adapt or

become obsolete.

Opportunities

“Worldwide demand for light hybrid vehicles (HEV) is estimated to reach 4.5

million units in 2013” (Datamonitor, 2008, 22). Many people will be looking to buy

hybrids because of the unstable gasoline market. Toyota is in prime position to get

these customers business with their existing line of hybrid cars, especially the popular

Prius, and the amount of money they are putting into furthering the technology and

producing new hybrid models. Toyota recently began manufacturing and selling the

Lexus LS 600h and LS600Hl 1 hybrid sedans in the Japanese market. “The LS600h

and LS600hl feature the world’s first 2 hybrid system combining a 5.0–liter, V-8 engine,

a high output motor and a full time all-wheel drive system” (Datamonitor, 2008, 22).

Toyota will continue to maintain the hybrid market edge and experience production and

revenue growth with new models such as these.


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China and India will continue to emerge as bigger and bigger markets for the

next decade. “Light vehicle production in China is expected to increase from 4.3 million

units in 2005 to 7.7 million units in 2010 while light vehicle production in India is forecast

to increase from 1.4 million units to 2.5 million units during the same period”

(Datamonitor, 2008, 22). Toyota has become more involved in the Asian market by

operating seven joint ventures and two wholly owned foreign enterprises in China and a

few enterprises in India. Given strong economic growth and an expanding middle class,

the demand for small cars in India is also likely to increase. The exponential demand

expected in these two markets and Toyota’s increasing presence there are “likely to

drive its top line growth” (Datamonitor, 2008, 22).

Threats

Rising Raw Material Prices

The aluminum and steel that Toyota uses to manufacture its cars have increased

sharply in price per ton the past couple of years. This effects Toyota’s, and other

automobile manufacturers, ability to keep their automobiles at competitive prices when

they reach the consumer. And if Toyota has to maintain their current retail car prices,

not adjusting for increased production expenses, as incentives for consumers in the

struggling world economy, they will see less profit (Datamonitor, 2008).

Declining Demand for Light Vehicles in the US

The sales of automobiles in United States have been slow since 2003. The

decline in demand for light vehicles is primarily attributed to increasing durability of

vehicles (Datamonitor, 2008). American drivers are keeping their cars longer because

of better technology that increases the vehicles quality and durability. “The median age

of US passenger cars increased to nine years in 2005, up from 8.9 years in 2004 and

only 8.3 years in 2000” (Datamonitor, 2008, 23). This creates a good problem for

Toyota, if there is such a thing. Customers who have bought a Toyota vehicle in recent

years will probably not need to purchase another vehicle for many years, because they

are high quality. But when it eventually comes time for them to buy another car, they

will look to Toyota for the same quality and value.


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Tightening Emission Standards

“The European Union (EU) commission and the EU Parliament have adopted a

directive that establishes stringent emission standards for passengers and light

emission vehicles for Model years 2005 and thereafter (EURO 4). Under the directive

the manufacturers will be responsible for the emissions performance of these vehicles

for five years or 100,000 kilometers, whichever occurs first” (Datamonitor, 2008, 24).

The EU is also working on new regulations that would further restrict emissions in the

decade to come. Many Asian countries have adopted similar regulations to lower

emissions. The United States, although slow in responding, is also increasing

emissions standards. These more stringent stands will require Toyota and its

competitors to rework their vehicles at a considerable cost (Datamonitor, 2008).

Keys to Competitive Success

Toyota’s success can be found in the Toyota Production System. It is described

in Jeffrey Liker’s (2004) writing as derived from studying Piggly-Wiggly’s just-in-time

distribution system, the writings of W. Edwards Deming about product quality, and

principles from an army training program.

Before TPS was formally written down, Womack, Jones, and Roos (1990)

showed how the Japanese automakers were simply better than their European and U.S.

counterparts. They introduced the term “lean manufacturing” that Toyota embraces

about doing more of everything with less of everything (Womack, et. al, 1990). “It

describes a production system that was better, faster, cheaper, required less space,

less inventory, fewer labor hours, and avoided wasteful products” (Liker, 2004, 3). This

philosophy and practice is what propels Toyota to success at all levels of the company.


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Part III Inputs and Internal Business Environment Analysis

Organizational Culture

This section of the system analysis of the Toyota Motor Company will focus on

the organizational culture of the company. For this report, organizational culture can be

regarded as the set of values, norms and beliefs that members within the organizations

all hold and that are taught to new employees. The analysis will examine the

mission/purpose, core values and philosophies, organizational structure, and specific

goals and objectives of Toyota. The results of the data collected show that Toyota has

a strong culture, where core values are intensely held and widely shared. Toyota’s core

values and culture are arguably at the heart of the company’s success; they are widely

recognized and copied by other companies in the auto industry and by companies in

other fields. Toyota brings their culture to their global activities and requires all

employees to: understand, adhere, and be trained in the “Toyota Way”. While others in

the auto industry have wavered on their core values, mission and purpose, Toyota has

stuck to the ambitious core of providing never-ending quality of automobiles and

products. All employees, managers, and shop workers buy into this concept and the

company transplants these beliefs at factories throughout the world as the company

grows in the global market.

Mission, Values and Structure

Mission/Purpose

Toyota’s North America Manufacturing Division has a clearly defined and highly

ambitious mission statement. When compared with Ford Motor Company’s mission

statement, Toyota’s mission statement shows societal concerns as opposed to Ford’s

company oriented mission (Liker, 2004). Table 3 compares excerpts of Toyota’s and

Ford’s mission statements.


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Table 3: Toyota vs. Ford Mission Statements

Table from “The Toyota Way” Jeffrey Liker, (2004, p.80).

Toyota Motor Manufacturing North America MISSION

1. As an American company, contribute to the economic growth of the community and the United States.

2. As an independent company, contribute to the stability and well-being of team members.

3. As a Toyota group company, contribute to the overall growth of Toyota by adding value to our customers.

Ford Motor Company MISSION

1. Ford is a worldwide leader in automotive and automotive related products and services as well as in newer industries such as aerospace, communications, and financial services.

2. Our mission is to improve continually our products to meet our customer’s needs, allowing us to prosper as a business and to provide a reasonable return to our stockholders, the owners of our business.

Of interest is Ford’s goal to be a leader in products and services and to continually

improve and prosper to provide a “reasonable return” to the stockholders – “the owners”

of the business (Liker, 2004). While in contrast Toyota’s mission does not mention

stockholders or quality, although it goes without saying that quality products are highly

important to Toyota. It can be concluded that Toyota’s mission is not simply just to

make a quality product that will make money for the stockholders. Toyota realizes that

this is what is required to attain their mission. Liker (2004) identifies Toyota’s true

mission statement in the following manner:

1. Contribute to the economic growth of the country in which it is located (external

stakeholders).

2. Contribute to the stability and well-being of team members (internal

stakeholders).

3. Contribute to the overall growth of Toyota.

What Toyota is saying is that the company must enhance the growth of society or it can

not contribute to its external or internal stakeholders, and this is its reason for making

excellent products (Liker, 2004). When this mission is contrasted with Ford’s, it is

evident that Toyota’s goals are loftier, with a desire to make society as a whole better by

contributing economic growth, stability for team members, and value to customers. This


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mission statement has the ability to rally employees around a shared purpose that is

bigger than any of them individually (Liker, 2004).

Core Values, Philosophies and Principles

Toyota has transformed from a small family run high quality manufacturer to a

global giant with plants and offices located throughout the world. Initially the principles

of the company, “The Toyota Way”, were not even officially written down. It was not

until 2001 that Fujio Cho, the company’s president at that time, ordered the company to

record in writing the “Toyota Way” (Fackler 2007). The principles of the “Toyota Way”

are listed in Table1: Principles of the Toyota Production System. These principles are

the core values of Toyota and represent the culture of the organization.

Organizational Structure

Figure 12 on the next page shows that Toyota is a vertically structured company.

The structure is fairly complex but efficient. The business aspects of Toyota’s structure

are rigid to support their drive for efficiency. The design and production sectors have a

little more flexibility to allow for innovative ideas that can increase Toyota’s efficiency.

Figure 12: Corporate Organizational Chart Diagram from Toyota Industries Corporation Social and Environment Report (2007)


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Specific Goals and Objectives

Hybrids and alternative fuel vehicles are a big part of the future for Toyota. They

are looking to produce the Prius cheaper and expand the number of hybrid models

available to consumers in the next couple of years (Strategic Direction, 2006).

Toyota is poised to enter the emerging markets with the appropriate fuel,

technology and supply and production systems for each market. They are carefully

studying each region and basing their production and sales strategies for each market.

Toyota believes this will allow them to meet the demands for each region and remain

efficient in their production process (Strategic Direction, 2006).

As can be seen in Figure 13, Toyota plans to be the undisputed leader in the

automotive producer in the industry worldwide by 2010. The figure shows the steps that

Toyota is taking to reach this primary goal: diffusion of good practices, innovation, and

growth.

Figure 13: Corporate Vision 2010 Diagram from Toyota Industries Corporation Social and Environment Report (2007)

Part IV Transformational/Execution System

This section of the system analysis of the Toyota Motor Company will examine

the transformational and execution system of the organization. For this report,

transformational and execution system represents the internal processes and methods

utilized by a company to transform the inputs to obtain the desired outcomes. The


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analysis will examine the reward system, team design, human resource systems, and

technologies utilized by Toyota to generate their exemplar outcomes.

Reward System

The typical Japanese company employee compensation system is a “seniority-

based system”, where salaries are increased in nearly direct proportion to age and the

years of service (Yuping, 2004). Post World War II Japanese employee incentives have

consisted of “lifetime employment”, “seniority-based wage system”, and “on-the-job

education and training” (Saruta, 2006). Toyota has devised a unique and complicated

system of managing promotion, progression and payment; because of the intricate

procedure involved, most workers do not understand how their wage is decided (Saruta,

2006). However, unlike a typical Japanese company, Toyota has implemented

performance based pay for bonus payments, and wages for “key post” in management

are undergoing changes. These performance based pay systems have resulted in large

wage differentials even among workers of similar age (Saruta, 2006). Saruta (2006)

contends that while the wage management of Toyota is not the typical Japanese

company’s reward system, it is not a wage based on job evaluation or type of duties that

is typical in Western companies. Rather, he contends that it is a system based on an

individual treatment encompassing the reorganization of the wage system, differentials

and levels which aims to appeal to core workers and heighten levels of motivation

(Saruta, 2006).

Team Design

The team and the concept of teamwork are vital to the “Toyota Way”. Principle

10 of the “Toyota Way” states: Develop exceptional people and teams who follow your

company’s philosophy (Liker, 2004). Toyota uses cross-functional teams as a means to

devise ways to improve processes and solve complex problems. They empower the

teams with the tools and responsibility required to improve the company (Liker, 2004).

Figure 14 depicts Toyota’s team concept for an assembly operation. Teams are kept

small with supervisors only in charge of a few team members or groups. Toyota


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understands and has in place training to teach individuals how to work together to

achieve a common goal; they realize teamwork must be taught (Liker, 2004).

Figure 14: Typical Toyota Organization – Assembly Operation Figure from “The Toyota Way” Jeffrey Liker, (2004, p.192).

Human Resource Systems

The human resource department at Toyota plays a very different role than that of

processing people as a stream of assets. The “Toyota Way” views the way team

associates are developed as the key competitive competency of the company (Liker,

2004; Liker and Meier, 2007). Toyota uses the mechanisms of incentive management

and organizational training to nurture the perfect Toyota employee who complies with

Toyota’s requirements of concentrated labor and long working hours (Saruta, 2006).

Over the years, Toyota has built up an incentive mechanism that is extremely complex

and ingenious, enabling the continued error free practice of the production system. This

mechanism in a way acts like a coercive force that makes concentrated labor and long

working hours obligatory as long as the worker remains in Toyota

‘Incentive’ management at Toyota is composed of three points. First, is the

incentive by economic stimulus such as wage, conventionally regarded as the most

important criterion (Saruta, 2006). This amounts to making a more secure economic

livelihood, even at the expense of family life. Until now, the system of seniority based


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wage, or lifetime employment, has effectively functioned as an incentive by instilling in

workers a sense of belonging to the company (Saruta, 2006). In the case of Toyota, a

seniority and merit based salary system focusing on promotion, progression, and

competitive pay increases has succeeded in motivating workers who choose to continue

working for Toyota (Saruta, 2006).

Secondly, the Toyota style (TPS) of personal management utilizes small ‘teams

or squads’ subject to long working hours and attendance controls to deliberately create

a atmosphere in which one is reluctant to be absent, truant, or make a mistake for fear

of ‘letting the others down’ (Saruta, 2006). Thirdly, there is a factor of labor flexibility

that has come to characterize conventional ‘Japan-style of management’ or ‘Japanese

personal management’. While such things as job rotation, allocation, and job

enlargement have been traditionally the part of Japanese personal management,

Toyota has taken this a stage further with the introduction of a behavioral science based

personal management system. By incorporating it into in–house training programs, a

system for acquiring ‘specialist skills’, Toyota has effectively used worker transfer or

enlargement of job scope and jurisdiction as a means of fostering motivation through

management via promotion progression and pay increases (Saruta, 2006).

These three factors continue to function today as a means of driving Toyota

workers to work long hours of concentrated labor for a relatively high wage. Active

participation and cooperation with Toyota style of personal management policies and

joint labor–management relations can mean a swifter and higher path to promotion,

progression, and pay increases than other workers (Saruta, 2006).

Shared Leadership/Decision-Making

At the executive level, Toyota is led by a 30-member board that makes the

important company and global level decisions. This board was increased from 25 to 30

members in 2007 to oversee Toyota’s continuing global expansion (Kyodo, 2007). All

members of this board are Japanese, with the exception of American James Press, who

was selected to the board after proving himself as the North American unit chief (Kyodo,

2007).


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At the production plant level, managers are key decision makers, but employees

also have a part in leadership and decision-making. At one plant in Thailand, the

Japanese managers formed a Thai only committee to vote on and approve managerial

promotions (Petison and Johri, 2007). This action was taken to foster trust and

strengthen the relationships between the Thai and Japanese workers. And, as stated

previously, Toyota employees are decision makers through their suggestions that keep

Toyota innovative and efficient.

Technologies

Toyota’s view and use of technology is documented in Principle 8 of the “Toyota

Way” which states, “use only reliable, thoroughly tested technology that serves your

people and process”. Toyota lags behind other automakers in acquiring new

technology; this is because the new technology may have failed the Principle 8 test of

supporting people, process, and value and is not ready to replace the simpler, tried and

true methods currently in use (Liker, 2004). This is not to say Toyota does not

embrace technology; it means that Toyota demands that the technology is thoroughly

tested, prototype tested on a small scale, and proven before it is fully implemented. As

Liker states:

“…Toyota does not lead the industry in acquiring technology, it is a global benchmark on how to use value-added technology that supports the appropriate process and people.” (Liker, 2004 p.160)

An example of Toyota’s excellent use of technology is the computer-aided design

use that allows parts and vehicles to be modeled digitally (MacKintosh, 2004). Using

this advanced modeling, Toyota’s time-to-market averages 24 months, regularly

reaches 15 months and has been as low as 10 months, while U.S. automakers are in

the 30-40 month range (Teresko, 2007). Toyota is a highly technological company that

uses technology wisely once it has proven to be advantageous to achieving the

company’s mission and adheres to the principles of the “Toyota Way”.


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Part V Problem Statement

This system analysis has shown Toyota Motor Company to be an exemplar

global company. The analysis indicates that Toyota’s outputs are industry leading and

that internal and external stakeholders are consulted, considered, and content with the

organization, management, and products of the company. Toyota has achieved great

success, undergone massive growth, and expanded its operations on a global scale.

But with the success, growth, and globalization comes problems. In the last 10 years,

Toyota has exported its manufacturing and management methods to 200,000 workers

at 27 plants worldwide, but has not always had the time to fully explain the ideas behind

them (Fackler, 2007). This rapid growth and globalization of Toyota may result in a

problem in the form of a compromise of some of the core values of the company. As

Koki Konishi, general manager of the Toyota Institute warns, “We must prevent the

“Toyota Way” from getting more and more diluted as Toyota grows overseas” (Fackler,

2007). Currently, only a third of Toyota’s total workers are employed at the 18 plants

located in Japan, and the potential exists that not all of the workers are in step with the

core principles and values of the company (Fackler, 2007). Takaki Nakanishi, an auto

analyst for JPMorgan Securities in Tokyo claims “Toyota is growing more quickly than

the company’s ability to transplant its culture to foreign markets. This is a huge issue

for Toyota, one of the biggest it will face in coming years.” The problem for Toyota is:

how can the company continue to grow and expand globally and yet maintain its culture

that has made it the company it is today?

Part VI Alternatives and Specific Recommendations

In this part of the system analysis, alternatives and specific recommendations to

overcome the problem of rapid growth and global expansion eroding the culture of

Toyota are put forward. Without a doubt, what makes Toyota the world’s greatest

manufacturer is its “Toyota Way” management principles. If these principles are not

maintained and enthusiastically adhered to by its employees, Toyota is in jeopardy of

becoming just another car manufacturer. The following three actions are recommended

to be implemented either in part or in whole to ensure the core values of Toyota are


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protected, and thus, the company can continue to perform at a level above the rest of

the automobile industry.

Growth

Toyota’s growth over the past 10 years has been extraordinary; nearly doubling

its revenue in the past decade; but with growth come vulnerabilities (Shirouzu and

Moffett, 2004). Now with the current world economic crisis, rising raw material costs,

and low consumer confidence it would be prudent to reexamine the ambitious growth

goals given in the company’s corporate vision 2010. This is the time to slow the growth

of the company allowing management to focus on core values and principles. The

recommendation is to slow the growth of the company and ensure all sites throughout

the world understand and are complying with the principles of the “Toyota Way”. There

are indications that Toyota’s growth is already putting a strain on human and technical

resources and undercutting quality, which is one of Toyota’s most critical strategic

advantages (Shirouzu and Moffett, 2004). There is a paradox that many successful

companies realize: getting bigger doesn’t always mean getting better (Shirouzu and

Moffett, 2004).

Globalization

Recently Toyota conducted a review of its production-development process and

concluded that outsourcing of design to global partners was the primary factor in recent

quality issues (Shirouzu, 2006). The global design teams were relying on computer-

aided engineering and analysis in place of building physical prototypes to perform

quality checks (Shirouzu, 2006). To meet the huge growth demand of the company,

Toyota is expected to hire 8,000 engineers globally to ensure quality of design and

production are maintained at Toyota standards (Shirouzu, 2006). This does not appear

to be a logical response to the quality issues. It would be advisable to reduce or forgo

the use of global engineering firms and return to firms that are part of the Toyota

Production System. Utilize engineering firms that reflect the core values and the culture

of Toyota. This recommendation will bring the “Toyota Way” back to the design and

production process and ensure the principle of never-ending quality is at the heart of the

design and production process.


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Training

Toyota motor corporation is about to supersede GM as the world’s largest

manufacturer of light vehicles. The major attributes to Toyota’s success have been the

adherence to its TPS philosophy. TPS incorporates the kaizen concept. Many

Japanese workers are used to this constant improvement concept and the long, tedious,

corrective work that is needed to realize it. This, however, takes a toll on the Japanese

workers, and they become stressed and fatigued by the long hours and hard work

(Hampson, 1999). As Toyota continues to expand globally and enter new markets, they

must find a way to integrate TPS with the local workforce culture that may be unfamiliar

with the “Toyota Way”. Toyota must demonstrate why the methods they use are

effective and superior to their competitors in order to get the new workers to buy into the

“Toyota Way”. Merely giving orders for workers to do their job and not telling and

showing them the why will not satisfy the workers when they are putting in long hours

and intense labor. These workers more than likely will not understand techniques such

as Just in Time production, unnecessary motions, over specification, etc. (Hampson,

1999). So Toyota must effectively utilize training, adaptive to the specific culture, to

teach these new employees the “Toyota Way” – the company’s core values and

mission. When Toyota gets their workers to buy into the “Toyota Way”, the global

markets will be sources of near limitless opportunities.


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