Contents1. INTRODUCTION...................................................................................................................................2

2. BRIEF TOYOTA BACKGROUND.......................................................................................................2

3. PESTEL Analysis of TOYOTA..............................................................................................................4

3.1. PORTER’S FIVE FORCES ANALYSIS OF TOYATA................................................................6

3.2. SWOT ANALYSIS.........................................................................................................................9

4. VALUE CHAIN ANALYSIS...............................................................................................................10

5. COST EFFICIENCY.............................................................................................................................11

6. STRATEGIC CAPABILITY................................................................................................................12

6.1. RESOURCES................................................................................................................................12

6.1.1.TANGIBLE RESOUCES......................................................................................................12

6.1.2.INTANGIBLE RESOURCES...............................................................................................13

6.1.3.HUMAN RESOURCES........................................................................................................13

6.2. THRESHOLD RESOURCES FOR TOYOTA.............................................................................13

7. COMPETENCIES.................................................................................................................................14

7.1. THRESHOLD COMPETENCIES................................................................................................14

7.2. UNIQUE RESOUCES AND CORE COMPETENCIES..............................................................15

7.3. CORE COMPETENCY................................................................................................................17

8. Critical Success Factor..........................................................................................................................19

9. Critical Success Factors of Toyota........................................................................................................20

10. Diversification.......................................................................................................................................24

11. Conclusions...........................................................................................................................................28

12. References.............................................................................................................................................29

1.INTRODUCTION

In this fiercely aggressive business world, the goal of most firms is to establish distinctive

or unique capabilities to gain a competitive advantage in the marketplace through utilising the

most of their core competencies. Competencies refer to the fundamental knowledge owned by

the firm (knowledge, know-how, experience, innovation and unique information), and to be

distinctive they are not confined to functional domains but cut across the firm and its

organisational boundaries. Today, business enterprises in developed countries operate in a more

complicated, and more regulated, environment. The strategic task, then, is to create a distinctive

way ahead, using whatever core competencies and resources at its disposal, against the

background and influence of the environment. Through these distinctive capabilities the

organisation seeks sustainable competitive advantage. Competition in many domestic and

international markets appears to be entering a new phase, in which product quality and

performance are becoming more important to customers than price. In such markets, the

effective management of the new product development process is the essence of competitive

advantage. Due to such changes, a review of the organisations’ strategic capabilities is a must if

they are to keep up with the demands of the changing times. This paper analyses the strategic

capabilities of Toyota Company in face of the ever-stiffening competition in the automotive

industry, as a potential tool to further strengthen Toyota’s position in the automobile market.

 2.BRIEF TOYOTA BACKGROUND

Toyota Motor Corporation is a famous Japanese multinational corporation, and is

considered the world’s second largest automaker of automobiles, trucks, buses, robots, and

providing financial services. Its founder is Kiichiro Toyoda, born in 1894, and the son of Sakichi

Toyoda, who became popular as the inventor of the automatic loom. Kiichiro inherited the spirit

of research and creation from his father, and devoted his entire life to the manufacture of cars.

After many years of hard work, Kiichiro finally succeeded in his completion of the A1 prototype

vehicle in 1935, which marked the beginning of the history of the Toyota Motor Corporation.

The first Type A Engine produced in 1934 was used in the first Model A1 passenger car

in May 1935 and the G1 truck in August 1935, and led to the production of the Model AA

passenger car in 1936. In addition to being famous with its cars, it still participates in the textile

business and makes automatic looms that are now fully computerised, and electric sewing

machines that are available in different parts of the world. It has several factories around the

world, which serve to manufacture and assemble vehicles for local markets. The corporation’s

factories are located in countries such as the United States, Australia, Canada, Poland, France,

Czech Republic, United Kingdom, Turkey, South Africa, Brazil, Argentina, Venezuela, Mexico,

Japan, Indonesia, Pakistan, India, Mexico, Malaysia, Thailand, China, Vietnam, and the

Philippines. Despite the many locations of its factories, its headquarters is located in Toyota,

Aichi, Japan.

            It invests a great deal of time and effort in its research into cleaner-burning vehicles, such

as promoting a Hybrid Synergy Drive and running a Hydrogen fuel cell in its vehicles. It has

significant market shares in developed countries, such as the United States, Europe, Africa and

Australia, and has significant markets in South East Asian countries. Its brands include the

Scion, its division in the United States, Guam and Puerto Rico, and the Lexus, which is Toyota’s

luxury vehicle brand.

            Aside from producing cars and other types of automobiles, such as SUVs and coasters,

Toyota also, participate in rallying or racing. The company’s presence in Motorsport can be

traced to the early 1970s, when Ove Andersson, a Swedish driver, drove for Toyota during the

RAC Rally in Great Britain, and in succeeding years, Toyota Team Europe was formed. Up to

the present, Toyota cars are still being used in a variety of racing events in different countries

around the world. These events include the CART in Vancouver, the Le Mans, the Indy Racing

League, the NASCAR, and the Toyota F1 Series.

           

.

 

3.PESTEL Analysis of TOYOTA

            Currently, Toyota faces a need for accelerated investment, in order to deploy the new

technologies, for pressing geo-political, economic, environmental and societal reasons.

            Political Observers will see a continuing progression in the ruinous steps which have

forced the industry into a socio-politico-economic corner. Whether this is related to flat demand

or to the company’s creation of an ever-wider range of vehicles that many buyers seem to care

little about, there is a problem. The company is likewise linked closely to the policies of

governments, the earnings of banks. Little wonder then that so many emerging countries are keen

to develop an auto sector or that there is such a political pressure to protect it in the developed

countries. Toyota Company is currently dominated by little more than a handful of firms, each

wielding colossal financial, emotional and political power. The company’s approach to dealing

with political institutions has not always been brilliant. It tends to be good on technical issues,

although it has not always fully presented the longer-term options, in order to make the choices

and their implications clear.

Economic For much of the developed world, and increasingly for the developing world,

Toyota Company is a pillar company in auto mobile business, a flag of economic progress.

Without Toyota Company in automotive industry, it is impossible to develop an efficient steel

business, a plastic industry or a glass sector – other central foundations of economic progress.

The Toyota Company has been a core company, a unique economic phenomenon, which has

dominated the twentieth century. However, the automobile industry including the Toyota

Company now suffers from a series of structural schisms and has become riddled with

contradictions and economic discontinuities. For the capital markets and the finance sector, it has

lost a lot of its significance, as a result of ever declining profits and stagnant sales. The

proliferation of products means that it has become hopelessly wasteful of economic resources.

While all these and more sound like a very gloomy assessment of such a vast economic

phenomenon, the industry is not in the end despondent. A different future is possible for the

industry, a highly desirable one.

Social As part of the development in automotive industry, the Toyota Company actually

affects the society as a whole. It employs millions of people directly, tens of millions indirectly.

Its products have transformed society, bringing undreamed-of levels of mobility, changing the

ways people live and work. The social value of the additional mobility that this industry brings

involves the value of the people being able to commute over longer distances easily, among

many others. For most of its existence the Toyota Company has been a model of social discipline

and control and it is not just that the auto sector offers a ‘pillar’ of something else. There are, on

the other hand, particular social issues to address in many developing countries, often those that

are the result of an undertone of religious faith. Toyota company has the role to play in helping

develop the mobility of such countries and it can be achieved at an acceptable social cost of the

country is prepared to learn the necessary lessons from those who have traveled this route before

it, and to make the necessary investments.

            Technological The Toyota Company works on a scale so awesome and has an influence

so vast that it is often difficult to see. The level and diversity of technologies that it must deploy

are increasing, which imposes both new investment burdens and new uncertainties and risks.

Roughly a million new cars and trucks are built around the world each week – they are easily the

most complex products of their kind to be mass-produced in such volumes. The industry uses

manufacturing technology that is the cutting edge of science. But still, the potential for

developing coordination skills, intellectual capabilities and emotional sensitivities through

electronic technologies remain far from fully exploited. There are numerous additional near-term

technological opportunities to adapt the company to changing energy availability. The

possibilities suggest that automotive technology is unexpectedly robust and provides a powerful

defence against energy starvation even if the real price of oil climbs steadily during the next

couple of decades.

            Legal Toyota Company is subject to numerous technical directives and regulations, as

well as legislation of a more legal nature. The legislation covers areas such as competition law,

intellectual property law, consumer protection and taxation, and emissions (air quality and fuels).

When the auto parts industry reached full development, accelerated technological efforts were

made to create a web of local suppliers that would make it possible to meet the growing legal

requirements for the national integration of production.

            Environmental Other than the vehicles themselves, and the roads and fuel needed to run

them; the business is intricately tied to the manufacture of a wide range of components and the

extraction of precious raw materials. Indirectly, it brings people road congestion, too many

fatalities and a wave of other environmental troubles. The effect to the Toyota Company is that

they needed to establish R&D centres to take advantage of research infrastructure and human

capital, so that they can develop vehicle products locally to satisfy the requirements of the

environmental and safety regulations more effectively.

3.1 PORTER’S FIVE FORCES ANALYSIS OF TOYATA

Michel Porter, an authority on competitive strategy, contends that a corporation is most

concerned with intensify of competition within its industry. The level of this intensity is

determined by basic competitive forces. "The collective strength of these forces", he contends,

"determines the ultimate profit potential in the industry, where profit potential in the industry,

where profit potential is measured in terms of long run return on investment capital". In carefully

scanning its industry, the corporation must assess the importance to its success of each of the 5

forces, those are as follows: threat of new entrants, rivalry among existing firms, and threat of

substitute products or services, bargaining power of buyers, bargaining power of suppliers. The

strong each of these forces, the more limited companies are in their ability to raise prices and

earn greater profits. A high force can be regarded as a threat because it is likely to reduce profits.

A low force in contrast, can be viewed as an opportunity because it may allow the company to

earn profits. In the short run, these forces act as constraints as a company's activities. In the long

run, however, it may be possible for a company, through its choice of strategy, to change the

strength of one or more of the forces to company’s advantage.

Threat of New Entrants

New entrants to an industry typically bring to its new capacity, a desire to gain market share and

substantial resources. They are, therefore, threats to an established corporation. The threat of

entry depends on the presence of entry barriers and the reaction that can be expected from

existing competitors. Global entrants may pose a threat to Toyota's market share, especially from

other Asia, Europe & U.S.A. car market leaders. Toyota as global car manufacturing company

started its production of vehicle outside Japan in 1959. Toyota has established its own car

manufacturing plant in different countries in Europe and successfully operating its business

activities. Ford, BMW & Jaguar already has secured market position in the British market

environment, therefore their threat is made all the greater as they now have knowledge of the

British market system and are building their customer and loyalty base. On the other hand

Toyota is trying to adopt the market share in Europe. Toyota as a multinational enterprise has

already launched its product to the online market and is currently mature stage of online product

cycle. However Toyota's online venture is in mature stage besides this they are always aware of

what the potential threats to its business are. More established online car manufacturing

company, who have already identified and possibly combated the risks to their market share,

may gain a competitive edge here, like rival Ford.

Threat of substitute products or services

Substitute products are those products that appear to be different but can satisfy the same need

as another product. Substitute products on the market could pose a threat to Toyota's if customers

are price sensitive. Ford, BMW, Vauxhall, Mitsubishi etc all goods at affordable prices and

target the lower end of the quality conscious customers. If Toyota's car prices are competitive as

a result of the quality of the vehicle or service being acceptable inferior and the production cost

are low, this will ultimately challenge Toyota's cost leadership pricing strategy.

Bargaining power of buyers: Buyers affect an industry through their ability to force down

prices, bargain for higher quality or more services and play competitors against each other. The

customer is ultimately king when they are car companies' consumers. They can exert more power

over Toyota's online than offline as the technology involved offers them the freedom of choice

not just of product but also of vehicle companies as it is convenient to switch. Bargaining power

of end users is not necessarily exerted on line regarding price sensitively of goods. The

sensitively surrounds the pricing strategy used by Toyota's as cost leadership and differentiation.

Bargaining power of suppliers

Suppliers can affect an industry through their ability to raise prices or reduce the quality of

purchased goods and services. Toyota's look to their internal means and market share to

determine whether they have power over the supplier and exert to gain their competitive edge.

Suppliers are forced into comprise, lowering their already competitive prices. Toyota also looks

to improve their own efficiencies in choosing their suppliers. This strategy is entitled, together

faster, simpler. A program to improve the quality levels of service from the supplier the force is

to then pass this on to the customer. As the industry is subject to inflation, interest rate increases,

exchange rate fluctuations and labor laws, Toyota as a car manufacturing company aware of their

low cost strategy and look to competitive pricing to begin with the supplier, so that the internal

competing demands for finances are prioritized.

Rivalry among existing firms

In most industries, corporations are mutually dependent. A competitive move by one firm can be

expected to have a noticeable effect on its competitors and thus may cause relation or counter

efforts. For example: car manufacturing industries dominated by Toyota, Honda, BMW, Ford,

and jaguar increased all level of competitive activity to such an extent that any price reduction or

new product introduction is now quickly followed by similar moves from other car

manufacturing companies. Porter contends, it is important to look beyond one's immediate

competitors, as there are other determinants of profitability. Specifically there might be

competition from substitute products or services. Buyers may perceive these alternatives as

substitutes; even though they are part of a different industry.

3.2 SWOT ANALYSIS Strengths One of Toyota’s most potent strength is that they are one of the world’s best known

brands. As they have been in the business for several years now, the experience that they have in

manufacturing cannot be overemphasised. They already have built a solid reputation for being a

dependable automaker. Additionally, they have the strength of being diverse with respect to their

product lines, having affiliated automotive brands including Aston Martin, Ford, Jaguar, Land

Rover, Lincoln, Mazda, Mercury and Volvo, which allows clients to choose from a variety of car

models to fit their lifestyle. They are also known to be supportive of societal causes, in particular

the fight for breast cancer and support after the September 11 attacks in the U.S. They pioneered

the moving assembly line, which became their mechanism for making vehicles more efficiently

and faster, therefore more affordable. Traditionally Toyota's international operations were a

source of that allowed the company to maintain its position as the second largest auto maker in

the world and to respond to GM's competitive moves.

 Weaknesses The company's organisational structure has become inefficient as the company

became more complex. This hindered Toyota's ability to manage its international network of

subsidiaries, branches, and companies. The weakness of its organisational strategy reflects to the

speculations over the likely performance of Toyota in the future, as the company’s financing

section is swamped down by hefty outstanding debts. The firm is not in risk of bankruptcy, but

the Toyota management is in a tight spot, and has to be extremely vigilant to not make it any

tighter. There is also a notable management issues within the company. Finally, because of the

increasing competition, the company has witnessed a decline in overall sales, a weakness on their

part as they have somehow failed to overcome the challenges that additional competition brings.

Opportunities Toyota Motors Company has the distinct opportunity to have cleaner engine

emissions, in alignment with their corporate responsibility to become environment-friendly.

Through working with environmental groups to help clean the environment, they also have the

opportunity to further enhance their image to the general public. Since they have already started

investing in Solar Power, the end is a more viable prospect. Toyota could further widen the scope

of their opportunities through specialising and rationalising its worldwide operations on a

regional basis and to develop a network organisation in which its subsidiaries would increase

their transnational linkages. Besides Toyota learning about the possibilities of producing quality

automotive products in their areas of operation at a comparative cost advantage, other relevant

factors could bring about new opportunities for exporting vehicles: the parent company's

efficiency-seeking strategy; its competitive disadvantage in the small-car segment of the market

and the competitors' moves in this market-segment; and the new more flexible regulations in the

respective countries in which they have manufacturing plants. Further, with Toyota’s existing

capability to innovate on automobiles, they have the opportunity to penetrate a still larger scope

of market.           

Threats. As with any firm in the automotive industry, Toyota faces very tight competitive

rivalry in the auto market. Competition is escalating, with the threat of new entrants continuously

flowing into the market from South Korea, China and new plants in Eastern Europe. Toyota is

also exposed to the risk of movement in the price of raw materials such as steel, glass, rubber and

fuel. The key economies in the US, Europe and the Pacific are also experiencing slow downs

lately. These economic factors are latent threats for the company under analysis. Further,

substitute products such as Natural gas, Electricity, Ethanol, Vegetable oil, Sunlight, Water poses

a distinct threat to the sustainability of company sales. While Toyota strategies responded to the

local opportunities and competitive advantages that were built over time in different national

markets, the competitiveness of foreign operations was also dependent upon the company's

management capabilities and its overall position in the industry worldwide. If such factors were

to perform under expectation, their competitiveness in the international scene would suffer

seriously.

4.VALUE CHAIN ANALYSIS

  Value chain is a tool to identify and to analyse the origins of competitive advantages

and the activities of the business could be grouped into two: primary and support activities. What

activities a business undertakes is linked to achieving its competitive advantage, and Toyota

seemed to be best prepared to implement a global strategy, because of the superior competitive

advantages of its foreign operations compared with GM and Chrysler. Paradoxically, Toyota's

rivals showed a greater disposition to use resources from outside of the United States. It was not

until 1994 that Toyota focused on developing a global strategy as a means to enhance its

competitive position in the industry. Before then, Toyota largely focused on building a strategy

that would allow the company to recover its competitive position in its own home market, which

was essential for survival. An analysis of the structural and institutional factors that shaped

Toyota's strategic response both to the new industry rules and the short-term challenges posed by

other industry competitors explains this paradox. A number of broad sustainability challenges set

the context for all of the value chain activities. These issues apply across the value chain: (1)

Population growth; (2) Urbanisation; (3) Child mortality; (4) Maternal health; (5) Infectious

diseases; (6) Biodiversity; (7) Loss of ecosystem services; (8) Poverty; (9) Education; and (10)

Gender Equality. All these issues are attended to by the Toyota Motor Company in alignment

with their efforts to maintain sustainable competitive advantage through preserving the good

public image that their clients expect from them.

5.COST EFFICIENCY

An important strategic capability in an organization is to ensure attention is paid to achieving and

continually improving cost efficiency. This will involve both resources and competencies to

manage costs. Customers can benefit from cost efficiency in terms of lower prices or more

product features for the same price.

For Toyota, Lean production changed product development and engineering techniques of

manufacturing. One of those techniques is Die-change technique which gives cost efficiency. In

which dies can be changed frequently using rollers. Dies were changed by workers themselves,

instead of experts, which reduces time and other related costs. This results the following.

a. More profits if small batches are manufactured

b. Large Inventory holding cost got reduced

c. Stamping mistakes were easily identified before the car is assembled

d. Quality of car increased

By minimizing the wastes the cost will automatically reduces. So the techniques like kanban

systems, quality at the source, just in time, uniform plant loading and by Focused factory

networks Toyota reduced its cost. By Energy conversion it reproduced energy required for

production. By this also it saved cost.

6. STRATEGIC CAPABILITYStrategic capability is the adequacy and sustainability of the resources and competencies

of an organization for it to survive and prosper. It is underpinned by the resources and

competencies of an organization. Strategy is concerned with matching a firm’s resources and

competencies to the opportunities that arise in the external environment. Increasing emphasis on

the role of resources and capabilities as the basis for strategy is the result of two factors. First, as

firms’ industry environments have become more unstable, so internal resources and capabilities

rather than external market focus has been viewed as a securer base for formulating strategy.

Second, it has become increasingly apparent that competitive advantage rather than industry

attractiveness is the primary source of superior profitability.

6.1RESOURCESResources are normally three types.

6.1.1 TANGIBLE RESOUCES: These are physical assets of an organization such as plant,

equipment, land, and mineral resources. And financial assets like cash, securities, and borrowing

capacity.

For Toyota: financial resources:

Cash: 4,871.8 billion Yen

Plant: Toyota Motor Engineering & Manufacturing (TEMA), headquartered in Erlanger,

Kentucky, is responsible for Toyota's engineering design and development, R&D, and

manufacturing activities in the U.S., Mexico and Canada. In 13 manufacturing locations across

North America, team members are producing 11 vehicles including the Avalon, Camry, Corolla,

Matrix, RAV4, Sienna, Sequoia, Tacoma, Tundra, Venza and the Lexus RX 350.

6.1.2 INTANGIBLE RESOURCES: These are non physical assets such as information, reputation,

and knowledge. Intellectual capital is an important aspect of the intangible resources of the

organization. This includes brands, business systems, and customer database. In a knowledge

based economy intellectual capital is a major asset.

For Toyota:

Information about the customer requirements.

Trademark

Good brand name.

Culture of Toyota:

1) Selecting employees for Life

2) People are the heart and soul of the Toyota Way

3) Stopping the line is everyone’s responsibility

4) Hiring Right person, in the right amount, in the right form at the right time

5) Funnel Model of Recruitment – Many prospects lead to few hires

6) Training people like Surgeons

6.1.3 HUMAN RESOURCES: It includes demographic profile of people in an organization. The

intangible asset of their skills and knowledge is also important. In knowledge based economies

people are most valuable asset.

For Toyota: some information about employee

6.2 THRESHOLD RESOURCES FOR TOYOTA Plant to produce automobiles.

Capital required for production, distribution and promotional activities.

Human resource needed for organization.

Good brand name or good will in public.

Manufacturing equipment.

Raw material required for production.

Inputs like power, water.

7 COMPETENCIES

Resources are important but how the organization utilized its resources is much more important.

There would be no point in having equipment or valuable knowledge or valuable brand if they

were not used effectively. The efficiency and effectiveness of physical, financial and human

resources in an organization depends on not just their existence but how they are managed.

Competencies are the activities and processes through which an organization deploys its

resources effectively. An organizational capability is a “firm’s capacity to deploy resources for a

desired end result.

Threshold capabilities are those capabilities for the organization to be able to compete in a given

market. If an organization does not posses these resources it will be unable to meet customer’s

minimum requirements and therefore be unable to continue to exist. For Toyota,

7.1 THRESHOLD COMPETENCIES

Demand forecasting for future production.

Manufacturing process: by using the efficient manufacturing process only they will

convert raw material into finished product in a better way.

Give training to employee. By this they will perform better.

Quality management: by this the organizations can give good quality products.

Trading off time, cost and quality.

Analyzing external market conditions.

Identifying these threshold resources and competencies are very important for an organization. If

it does not pay attention to them they can not survive for a long time. They do not have

capability to be competitive.

7.2 UNIQUE RESOUCES AND CORE COMPETENCIESThreshold resources and competencies are important but they do not create competitive

advantage. Competitive advantage is created and sustained if the organization has unique

capabilities and resources that competitors cannot imitate.

Unique resources are those resources that critically underpin competitive advantage and that

others cannot easily imitate.

For Toyota:

Plants that Operate in Harmony with the Natural Environment:

For an automaker, making cars, i.e., manufacturing is the most fundamental operation. Toyota’s

Sustainable Plant Concept attempts to incorporate the concept of sustainability into

manufacturing. Toward its goal of achieving a sustainable plant based on the concept of "a plant

that fully utilizes natural resources, while operating in harmony with the natural environment,"

Toyota established the following three basic initiatives

Energy reduction: Development and introduction of low CO2-emitting production technologies

and daily kaizen (improvement) activities.

By the end of FY2006, the Tsutsumi Plant had reduced its CO2 emissions by 50% or more from

the 1990 level by taking such actions as installing an innovative gas engine cogeneration system.

The Tsutsumi Plant plans to further conserve energy by eliminating energy waste. At the

Takaoka Plant, Toyota is introducing low CO2 production technologies to reduce the number of

drying ovens needed in its painting process. The technologies implemented on the new No.1

Painting Line, which began operation in 2007, and to be implemented on the new No. 2 Painting

Line, are together expected to reduce the Plant's annual CO2 emissions by approximately 35%.

Energy conversion: Utilization of renewable energy (solar, etc.).

In the area of utilizing renewable energy, the Tsutsumi Plant installed a polysilicon-type

photovoltaic power generation system with a rated output of approximately 2,000 kW. This

system is one of the largest being used by an automobile production plant in the world and is

capable of supplying approximately half the electricity needed in the assembly process.

Additionally, part of the generated electricity is stored in batteries and used for powering the

streetlights surrounding the Plant.

7.3Local community involvement and ecological preservation

Tree planting at production plants: "Green for Tomorrow". In line with these three basic

initiatives, the Tsutsumi Plant begantaking actions toward the goal of achieving a sustainable

plant. The goal of the sustainable plant concept is the creation of "a plant that fully utilizes

natural resources, while operating in harmony with the natural environment." Toyota hopes that

employees will look at the efforts and feel proud to work at the Tsutsumi Plant. A sustainable

plant can only be achieved when the plant’s facilities, organizational structures, and the

awareness of the people who work there all become aligned in working toward this goal.

Toyota knows how to utilize workers very efficiently. Workers are the part of the

company. So they will work with more interest and enthusiasm. Workers are grouped

into teams with team leader. Team was asked to suggest ways to improve the quality.

i.e.,‘Kaizen’, the technique of continuous improvement. Problems were rectified

immediately by stopping the line unlike in Mass Production where the line was stopped

after the completion of work. Workers learnt to rectify the mistakes. Slowly the line was

never stopped and there were no errors in the system.

Supply Chain Modifications: Suppliers were organized into functional tiers. Different

responsibilities were assigned to firms in each tier. For Example, First tier suppliers were

responsible for working as an integral part of the product – development team. Second

Tier of suppliers are formed from the first tier suppliers. They were assigned the job of

fabricating individuals’ parts. Removed Vertical Integration among suppliers which lead

to large bureaucracy. Suppliers were totally involved in Toyota’s Product Development.

Toyota Technical Center (TTC), a division of TEMA, is located in Ann Arbor,

Michigan. Recent expansion in York Township has increased investment by $187

million. This new location is home to Toyota's first full safety test facility outside Japan.

8. CORE COMPETENCY

These are the activities and processes through which resources are deployed in such a way as to

achieve competitive advantage in ways that others can not imitate.

For Toyota: “Toyota Production System” or “Lean Manufacturing System”

In Toyota Production System, it mainly focuses on the following.

1. Focuses explicitly on perfection

2. Costs decline continuously

3. Focuses on Zero Defects

4. Focuses on Zero inventories

5. Enormous Product Variety

Here for Toyota Production System, the main strategy to achieve the above is to minimize waste

(Muda), unevenness (Mura) and over burden (Muri).

There are 7 types of wastes. Those are Waste from Overproduction, Waste of Waiting Time,

Transportation Waste, Inventory Waste, Processing Waste, Waste of Motion and waste of

correction.

Toyota minimized these wastes by

1. Focused factory networks: These are small specialized plants that limit the range of

products produced (sometimes only one type of product for an entire facility). They can do a

better job because repetition and concentration in one area allows its work force and

managers to become effective and experienced in the task required for success. By this

technique Toyota maximized its output by using minimum inputs. It saved the time and it

overcomes the problems of overburden and over production. Because all plants have idea

about what other plants are producing and how much quantity. So they will produce

according to other requirements.

2. Kanban production control systems: Uses simple, visual signals to control the movement

of materials between work centers. It identifies the part number and container capacity,

along with other information, and is used to provide an easily understood, visual signal that

a specific activity is required. By this technique Toyota minimized the material waste. It

provides the raw material what exactly the process wants.

3. Group technology: similar parts are arranged into families, and processes to make parts

that are arranged in specialized work cell. It simplifies schedules, reduce transportation and

ease supervision. By this technique Toyota reduced the waste of motions. So it saved more

time.

4. Quality at the source:

i) Do it right the first time

ii) When something goes wrong, stop the process immediately and address

iii) Workers are trained and empowered to control their own process

5. JIT production: this system can be described as a system that produces and delivers

finished goods just in time to be sold, subassemblies just in time to be assembled into

finished goods, and purchased materials just in time to be transformed into fabricated parts.

Just in time is a pull manufacturing system where production starts only on demand.

a. Produce what is needed when it is needed

b. Intended for repetitive manufacturing

c. Low inventory, ordered only as needed

9. Critical Success Factor Critical success factors (CSFs) have been used significantly to present or identify a few key

factors that organizations should focus on to be successful.  As a definition, critical success

factors refer to "the limited number of areas in which satisfactory results will ensure successful

competitive performance for the individual, department, organization”.  Identifying CSFs is

important as it allows firms to focus their efforts on building their capabilities to meet the CSFs,

or even allow firms to decide if they have the capability to build the requirements necessary to

meet critical success factors (CSFs).

MAIN ASPECTS OF CSFs

CSFs are tailored to a firm's or manager’s particular situation as different situations (e.g.

industry, division, individual) lead to different critical success factors.  Rockart and Bullen

presented five key sources of CSFs: the industry, competitive strategy and industry

position, environmental factors, temporal factors, and managerial position (if considered

from an individual's point of view).

Critical Success Factors of Toyota

Toyota is clearly a dominate leader in automobile manufacturing today. The principles

employed at every level of the company have certainly led to a standard of quality that no one in

the automotive industry can argue with. What these principles are and how they are implemented

within the Toyota Corporation can certainly help the automakers of the United States and indeed

the world achieves the same success. When these 14 principles are listed and compared with

some of the strategies that United States automakers have employed, it becomes clear why

Toyota has succeeded as it has. Even though there are many critical success factors for Toyota

these 14 principles were considered as most important CSFs for growth of Toyota.

The 14 Principles of the Toyota Way

The Toyota Way has been called "a system designed to provide the tools for people to

continually improve their work"

The 14 principles of The Toyota Way are organized in four sections:

1. Long-Term Philosophy

2. The Right Process Will Produce the Right Results

3. Add Value to the Organization by Developing Your People

4. Continuously Solving Root Problems Drives Organizational Learning

The principles are set out and briefly described below:

Section I — Long-Term Philosophy

Principle 1

Base your management decisions on a long-term philosophy, even at the expense of

short-term financial goals.

People need purpose to find motivation and establish goals.

Section II — the Right Process Will Produce the Right Results

Principle 2

Create a continuous process flow to bring problems to the surface.

Work processes are redesigned to eliminate waste (muda) through the process of

continuous improvement — kaizen. The eight types of muda are:

1) Overproduction

2) Waiting (time on hand)

3) Unnecessary transport or conveyance

4) Over processing or incorrect processing

5) Excess inventory

6) Unnecessary movement

7) Defects

8) Unused employee creativity

Principle 3

Use “pulls" systems to avoid overproduction. A method where a process signals its predecessor

that more material is needed. The pull system produces only the required material after the

subsequent operation signals a need for it. This process is necessary to reduce overproduction.

Principle 4 Level out the workload (heijunka). (Work like the tortoise, not the hare). This helps

achieve the goal of minimizing waste (muda), not overburdening people or the equipment (muri),

and not creating uneven production levels (mura).

Principle 5

Build a culture of stopping to fix problems, to get quality right the first time. Quality takes

precedence (Jidoka). Any employee in the Toyota Production System has the authority to stop

the process to signal a quality issue.

Principle 6

Standardized tasks and processes are the foundation for continuous improvement and employee

empowerment. Although Toyota has a bureaucratic system, the way that it is implemented

allows for continuous improvement (kaizen) from the people affected by that system. It

empowers the employee to aid in the growth and improvement of the company.

Principle 7

Use visual control so no problems are hidden. Included in this principle is the 5S Program - steps

that are used to make all work spaces efficient and productive, help people share work stations,

reduce time looking for needed tools and improve the work environment.

1) Sort: Sort out unneeded items

2) Straighten: Have a place for everything

3) Shine: Keep the area clean

4) Standardize: Create rules and standard operating procedures

5) Sustain: Maintain the system and continue to improve it

Principle 8

Use only reliable, thoroughly tested technology that serves your people and processes.

Technology is pulled by manufacturing, not pushed to manufacturing.

Section III — Add Value to the Organization by Developing Your People

Principle 9

Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.

Without constant attention, the principles will fade. The principles have to be ingrained, it must

be the way one thinks. Employees must be educated and trained: they have to maintain a learning

organization.

Principle 10

Develop exceptional people and teams who follow your company's philosophy. Teams should

consist of 4-5 people and numerous management tiers. Success is based on the team, not the

individual.

Principle 11

Respect your extended network of partners and suppliers by challenging them and helping them

improve. Toyota treats suppliers much like they treat their employees, challenging them to do

better and helping them to achieve it. Toyota provides cross functional teams to help suppliers

discover and fix problems so that they can become a stronger, better supplier.

Section IV: Continuously Solving Root Problems Drives Organizational Learning

Principle 12

Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu). Toyota

managers are expected to "go-and-see" operations. Without experiencing the situation firsthand,

managers will not have an understanding of how it can be improved. Furthermore, managers use

Tadashi Yamashima's (President, Toyota Technical Center (TCC)) ten management principles as

a guideline:

1) Always keep the final target in mind.

2) Clearly assign tasks to yourself and others.

3) Think and speak on verified, proven information and data.

4) Take full advantage of the wisdom and experiences of others to send, gather or discuss

information.

5) Share information with others in a timely fashion.

6) Always report, inform and consult in a timely manner.

7) Analyze and understand shortcomings in your capabilities in a measurable way.

8) Relentlessly strive to conduct kaizen activities.

9) Think "outside the box," or beyond common sense and standard rules.

10) Always be mindful of protecting your safety and health.

Principle 13

Make decisions slowly by consensus, thoroughly considering all options; implement decisions

rapidly (nemawashi). The following are decision parameters:

1) Find what is really going on (go-and-see) to test

2) Determine the underlying cause

3) Consider a broad range of alternatives

4) Build consensus on the resolution

5) Use efficient communication tools

Principle 14

Become a learning organization through relentless reflection (hansei) and continuous

improvement (kaizen). The process of becoming a learning organization involves criticizing

every aspect of what one does. The general problem solving technique to determine the root

cause of a problem includes:

1) Initial problem perception

2) Clarify the problem

3) Locate area/point of cause

4) Investigate root cause (5 whys)

5) Countermeasure

6) Evaluate

7) Standardize

10.Diversification is a form of corporate strategy for a company. It seeks to increase

profitability through greater sales volume obtained from new products and new markets.

Diversification can occur either at the business unit level or at the corporate level. At the

business unit level, it is most likely to expand into a new segment of an industry which the

business is already in. At the corporate level, it is generally and it is also very interesting entering

a promising business outside of the scope of the existing business unit.

Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The

first three strategies are usually pursued with the same technical, financial, and merchandising

resources used for the original product line, whereas diversification usually requires a company

to acquire new skills, new techniques and new facilities.

The strategies of diversification can include internal development of new products or markets,

acquisition of a firm, alliance with a complementary company, licensing of new technologies,

and distributing or importing a products line manufactured by another firm. Generally, the final

strategy involves a combination of these options. This combination is determined in function of

available opportunities and consistency with the objectives and the resources of the company.

There are three types of diversification:

Concentric Diversification,

Horizontal Diversification,

Conglomerate Diversification.

Diversification is the riskiest of the four strategies presented in the Ansoff matrix and requires

the most careful investigation. A firm should choose this option only when the current product or

current market orientation does not offer further opportunities for growth. In order to measure

the chances of success, different tests can be done.

The attractiveness test: the industry that has been chosen has to be either attractive or

capable of being made attractive.

The cost-of-entry test: the cost of entry must not capitalize all future profits.

The better-off test: the new unit must either gain competitive advantage from its link with

the corporation or vice versa.

Toyota’s Diversity Strategy:

Toyota is committed to the success of its 21st Century Diversity Strategy. The Toyota Diversity

Strategy outlines the processes and programs will use them to achieve their diversity goals. At

the core of their plan are elements from which they will build a sustainable diversity platform:

They aligned the diversity commitment to the tenets of the Toyota Way, “respect for

people” and “continuous improvement.”

They secured the support of their senior management.

They established real goals — ones that are actionable, ones that stretch them beyond the

status quo, and, most importantly, ones that they can achieve now.

They have made themselves accountable and have established criteria by which they will

measure change and will be judged.

They have committed to a training and education program to acquire new skills and gain

new understanding.

They created a diversity management structure with the authority and conviction to push

the organization toward its vision.

They have committed to an ongoing communication strategy and will communicate their

commitment and progress in diversity to all who have a stake in the future of Toyota.

Toyota is committed to developing a culture that views diversity as a pathway to a better Toyota.

This commitment demands that they support the human resources aspect of the diversity

strategy. They are embarking on a five-prong plan to ensure that their diversity initiatives

succeed throughout the organization.

First, the senior management of Toyota North American companies will communicate the

strategy to every manager and associate. There will be a system-wide rollout, both orally and in

writing.

Second, the implementation of the diversity strategy will be driven by real benchmarks and real

timetables, which will be set forth in a written document to be provided to all relevant managers.

Third, they will dedicate a lead manager in each area to ensure full compliance at all levels of the

company. These lead managers will report directly to a senior level executive on a quarterly

basis. In addition, the organization will provide incentives to managers (reflected in rewards,

bonuses and positive performance evaluations) to ensure their full compliance with the diversity

plan and their full energies to achieving the specific goals of the plan and meeting its timetables.

Fourth, they will have in place a planned deviation system, which will address situations where

managers fail to achieve their established goals and timetables or commit less than their full

efforts to achieving them.

Finally, they will continue to work with outside organizations to ensure that the strategy is

working and remains state of the art. They believe that their diversity strategy is the first step in

becoming the company strives to be.

11.Conclusions

             In 1982, it was observed that the automotive industry has been depended upon by other

industrial sectors to provide them with means with which to optimise their investment capital

because of the transfer of its technology, which basically means that the manufacturing and

materials handling processes that revolve around mass auto production will be, in the future, far

removed from their original use through consulting engineering firms that undertake to design

and equip factories. The tendency for car manufacturers, then, will be to focus on competition

that would become more rigorous, giving special attention to profit-gaining activities and

concentrating also on arranging for financial, marketing and industrial cooperation among car

makers.

Toyota, though it has started as a small company with lower price but maintained quality

from the beginning. It was the first company in the world which introduced lean manufacturing

technology, and has unique resources and core competencies. The 14 management principles

which are the critical success factors and unique factors followed by Toyota made it successful

company and others viewed these principles in such a way if any company followed these

principles they will definitely get success. By following these unique resources and

competencies and diversification in different fields Toyota still remained one of the successful

companies in this competitive world.

12. References

BOOKS

Gerry Johnson, Kevan Scholes, Richard Whittington, Exploring Corporate Strtegy,

Seventh Edition, Pearson Education, U.K.

Jeffrey K. Liker, The Toyota Way, Twentieth Edition, Tata McGraw-Hill Publishing

Company Ltd, New Delhi.

The Toyota Kata, Tata Mc Graw-Hill Publishing Company ltd New Delhi.

Liker, J; Meier, D. (2005). The Toyota Way Fieldbook: A Practical Guide for

Implementing Toyota's 4Ps. McGraw-Hill. ISBN 0071448934.

Liker, J (2004). The Toyota Way: 14 Management Principles from the World's Greatest

Manufacturer.

Websites Hino, Satoshi (20B05). Inside the Mind of Toyota: Management Principles for Enduring

Growth. University Park, IL: Productivity Press. ISBN 978-1-56327-300-1.

http://www.productivitypress.com/productdetails.cfm?SKU=3004.

Liker, Jeffrey (2004). The 14 Principles Of The Toyota Way: An Executive Summary of

the Culture Behind TPS. http://www.si.umich.edu/ICOS/Liker04.pdf.

www.toyota.com

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