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

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By:

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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: Toyotas Consolidated Financial Performance ............................................................. 10 Figure 6: Fords Consolidated Financial Performance ................................................................. 11 Figure 7: General Motors Consolidated Financial Performance ................................................. 11 Figure 8: Profile of the Toyota Industries Group.......................................................................... 11 Figure 9: Toyotas 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: Worlds 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 Toyotas 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 Toyotas success? Jeffrey Liker (2004) accurately and concisely describes what is regarded as the reasons for Toyotas exemplar performance: The incredible consistency of Toyotas 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. Toyotas 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 ShortTerm Financial Goals.

2. 3. 4. 5. 6.

Create Continuous Process Flow to Bring Problems to the Surface. Use Pull Systems to Avoid Overproduction. Level Out the Workload (Heijunka). Build a Culture of Stopping to Fix Problems, to Get Quality Ringht the First Time. Standardized Tasks Are the Foundation for Continuous Improvement and Employee Empowerment.

7. 8. 9.

Use Visual Control So No Problems Are Hidden. Use Only Reliable, Thoroughly Tested Technology That Serves Your People and Process. Grow Leaders Who Thoroughly Understand the Work, Live the Philosophy.

10. Develop Exceptional People and Teams Who Follow Your Companys 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 Toyotas 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
Toyotas 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 Best large multi-activity vehicle - Toyota Sequoia

In the Vehicle Dependability category: Best compact car - Toyota Prius Best compact multi-activity vehicle - Toyota RAV 4 Best large multi-activity vehicle - Toyota Sequoia 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 Toyotas sales figures, give a fair account of Toyotas popularity with the customers. Toyota Prius, the worlds first hybrid car, has received many awards from all round the world. The Swiss government named Prius as the worlds 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. SAEs 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. 8

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International Engines 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

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Business and Financial Indicators

Market share and revenue are fairly accurate indicators of a companys 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 Toyota has also Motors to become the worlds largest automobile manufacturer.

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 General Motors Corporation Toyota Motor Corporation Ford Motor Company Volkswagen AG Honda Motor Co., Ltd. Nissan Motor Co., Ltd. Other Market Share Range 10.5% (2007) 10.3% (2007) 8.2% (2007) 6.6% (2007) 5.5% (2007) 5.1% (2007) 53.8% (2007)

Figure 4: Market Share Worldwide Automobile Market share, IBIS Global Auto Report (2008)
Million Dollars Revenue 128965 163637 172749 179083 202864 262394 Million Dollars Income 6247 10995 10907 11681 13927 17146 Units Employees 264096 264410 265753 285977 299394 N/A

Year 2003 2004 2005 2006 2007 2008

Percent Growth N/C 26.9% 5.6% 3.7% 13.3% 29.3%

Percent Growth N/C 76.0% -0.8% 7.1% 19.2% 23.1%

Figure 5: Toyotas Consolidated Financial Performance

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Million Dollars Revenue 163420 165066 171652 176896 160123 172455

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Million Dollars Income -980.0 495.0 3487.0 1440.0 -12613 -2723

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Units Employees 350321 327531 324864 300000 283000 246000

Year 2002 2003 2004 2005 2006 2007

Percent Growth N/C 1.0% 4.0% 3.1% -9.5% 7.7%

Percent Growth N/C -150.5% 604.4% -58.7% -975.9% -78.4%

Figure 6: Fords Consolidated Financial Performance

Million Dollars Revenue 186763 185524 193517 192604 207349 181122 Million Dollars Income 1736 3822 2804 -10567 -1978 -38732 Units Employees 350000 326000 324000 335000 280000 266000

Year 2002 2003 2004 2005 2006 2007

Percent Growth N/C -0.7% 4.3% -0.5% 7.7% -12.6%

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 employees 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 worlds most innovative companies, although Toyotas 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. innovation in this way: .if Toyota doesnt look like an innovative company its only because our definition of innovation cool new products and technology breakthroughs, by Steve Jobs-like visionaries is far too narrow. Toyotas 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 hasnt made them any less. (Surowiecki, 2008) James Surowiecki (2008) describes Toyotas

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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 Toyotas 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. Toyotas 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 Toyotas innovation philosophy differs from other companies, and how their relentless innovative drive achieves grearter results than other companies.

Figure 9: Toyotas Innovation Timeline Compared to Most Organizations Diagram based on The Elegant Solution, Toyotas 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 magazines 2006 annual report of the worlds most

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

Table 2: Worlds 50 Most Innovative Companies Table from Business Week The Worlds 50 Most Innovative Companies, Business Week, (April, 2006, p.62).
Business Week Most Innovative Companies (2006) Rank 1 2 3 4 5 6 7 8 9 10 Company Apple Google Toyota General Electric Microsoft Tata Group Nintendo Procter and Gamble Sony 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 Toyotas 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. programs include literacy and adult learning programs. These

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, Toyotas outlook is good even when the industrys 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.
Million Number 58.4 61.8 63.9 66.4 67.2 67.5

Year 2003 2004 2005 2006 2007 2008

Percent Growth N/C 5.8% 3.4% 3.9% 1.2% 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 GMs, Fords, and Chryslers 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 Indias 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 worlds cheapest four door car. While Chinas 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 worlds first 2 hybrid system combining a 5.0liter, 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 Toyotas 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 Toyotas, 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. emissions. Many Asian countries have adopted similar regulations to lower

The United States, although slow in responding, is also increasing These more stringent stands will require Toyota and its

emissions standards.

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

Keys to Competitive Success

Toyotas success can be found in the Toyota Production System. It is described in Jeffrey Likers (2004) writing as derived from studying Piggly-Wigglys 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. Toyotas core values and culture are arguably at the heart of the companys 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

Toyotas North America Manufacturing Division has a clearly defined and highly ambitious mission statement. When compared with Ford Motor Companys mission statement, Toyotas mission statement shows societal concerns as opposed to Fords company oriented mission (Liker, 2004). Table 3 compares excerpts of Toyotas and Fords 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 wellbeing 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 customers 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 Fords 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 Toyotas 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 Toyotas 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. 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 Fords, it is evident that Toyotas 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 Liker (2004) identifies Toyotas true

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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 companys 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 Toyotas 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 Toyotas 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 senioritybased 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 companys 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 companys 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 Toyotas 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 Toyotas 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 inhouse 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 labormanagement 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 Toyotas 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
Toyotas 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 Toyotas 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, Toyotas 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 companys 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 Toyotas 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 Toyotas 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 companys 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 worlds 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
Toyotas 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 companys 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 Toyotas growth is already putting a strain on human and technical resources and undercutting quality, which is one of Toyotas most critical strategic advantages (Shirouzu and Moffett, 2004). There is a paradox that many successful companies realize: getting bigger doesnt 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 computeraided 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 worlds largest manufacturer of light vehicles. The major attributes to Toyotas 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 companys 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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References
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May, M. E. (2006). The Elegant Solution, Toyota's Mastering Innovation. New York: Simon and Schuster. McGregor, J., Bemer, R., Rowley, R., Hall, K., & Amdt, M. (2006, April 24). The World's 50 Most Innovative Companies. Business Week, p. 62. Muschett, F. D. (1997). Principles of Sustainable Development. Delray Beach: St. Lucie Press. Petison, P. & Johri, L. M. (2007). Developing local talent in international subsidiaries: the importance of trust and respect in Toyota. Development and Learning in Organizations, 21 (3), 10-13. Quality counts: The Toyota blueprint for improvement and growth (2008). Strategic Direction, 24 (4), 5-9. Reed, J. (2008). Challenges Open Up New Paths to Profits. Financial Times (London). Saruta, M. (2006, March 12). Toyota Production System: The "Toyota Way" and Labour-Management Relations. Asian Business & Management , pp. 487-506. Seijts, G. H., & Crim, D. (2006). What Engages Employees the Most or, The Ten C's of Employss Engagment. Ivey Business Journal. Shiouzu, N., & Moffett, S. (2004, August 4). Bumpy Road: As Toyota Closes In on GM, Quality Concers Also Grow; Amid Record Profits, It Strives to Stanch Flow of Errors; Dearth of Production Gurus; Tutoring Americans in Kaizen. The Wall Street journal , p. A.1. Shirouzu, N. (2006, December 13). Toyota Ties Quality Issues to Rushed Work. The Wall Street Journal , p. B3D. Sperling, D. (1995). Future Drive: Electric Vehicle and Sustainable Transportation. Washington D.C.: Island Press. Surowiecki, J. (2008, May 12). The Open Secret Of Success. The New Yorker . Teresko, J. (2007, February). Toyotas Real Secret. Industry Week Towers Perrin. (2008). Global Work Force Study 2007-2008. Toyota Motor Corporation (2007). Toyota Industries Corporation Social and Environmental Report 2007. Retrieved from http://www.toyota.com/about/environment2007/ on October 26, 2008.

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Toyota Motor Corporation (2008). http://www.toyota.com/about/our_commitment/philanthropy/index.html. Retrieved on October 27, 2008. Winfield, I. (1994). Toyota UK Ltd: Model HRM Practices? Employee Relations, 41-54. Womack, J. P., Jones, D. T., & Roos. D (1990). The Machine That Changed the World. New York: Rawson Associates. Yuping, C. (2004). Compensation System in Japan, United States, and European Countries. P.R. China: Institute for International Labor Studies Ministry of Labor and Social Security. Zhao, F (2007). Technologies for Near-Zero-Emission Gasoline-Powered Vehicles. Warringdale: SAE International.

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