Project Final Group1

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Project (5 credits)Organizational theory and Entrepreneurship (EFO512)

Advanced level, 15 credits, spring 2010School of Business

Opportunity and Innovation, the Journey to IndustryLeadership A Case Study of Toyota Motor Corporation

LevanAsambadze, Thuy Nguyen &Sergio Quiones

Mlardalen University 2010

Keywords: corporate entrepreneurship, organization, Toyota, entrepreneurial process,innovation, opportunity, industry leadership.


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Contents

INTRODUCTION ......................................................................................................................... 1

CONCEPTUAL FRAMEWORK ................................................................................................... 2

RESEARCH METHOD ................................................................................................................. 2

EMPIRICAL FINDINGS ................................................................................................................ 3

Sources of opportunity ............................................................................................................. 3

The innovations of Jidoka and Just-in-time ............................................................................ 5

The innovation of the Toyota Production System .................................................................. 7

The modern Toyota Production System ................................................................................. 7

ANALYSIS.................................................................................................................................... 10

Jidoka - innovation and opportunity ...................................................................................... 10

Just In Time - innovation and opportunity ............................................................................. 11

The Toyota Production System - innovation and opportunity ............................................. 12

Long-term philosophy ............................................................................................................ 13

Kaizen continuous improvement ........................................................................................ 14

The importance of people ....................................................................................................... 15

CONCLUSION ............................................................................................................................ 15

CONCLUDING REMARKS ......................................................................................................... 16

REFERENCES .............................................................................................................................. 17


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INTRODUCTION

Why study Toyota

Toyotas brand value 2009 was $31.33 B. making them the most valuable brand in the carautomotive industry. In the total ranking of global brands 2009 the company was numbereighth, outranked only by corporations like IBM, General Electric and Nokia. Toyota continuesto develop its long-term value building on its existing green credentials, announcing plans thatthey will increase their green dealerships, where most parts of the buildings are made ofrenewable primary products (Interbrand, 2009). According to a report from the Europeancommission Toyota invested 7.6 B. in research and development 2009, making it the mostresearch intense corporation in the world (Ny Teknik, 2009). Today Toyotas Motor Corp (TM)market cap is $132.33 B. Fords market cap is $31.74 B. Because of the crisis in the industry,General Motor and Chrysler are not even traded in the stock market anymore but their"market cap" today is definitely smaller than Fords (Bloomberg, 2010).

You might have seen it, the sticker that many Toyota customers put on their cars that say"I love my Toyota". But our choice of case company doesnt mean that we love Toyota, itdoesnt mean that we think Toyota is perfect. We are not trying to sell you a Toyota; its notabout cars at all really. Because, to be honest, in the competitive car manufacturing industrythe technology is almost the same, the product need is essentially the same and customers arethe same. But most people will agree if we say that Toyota have been doing something right,and probably quite unique. In general we are interested in learning something about whatmade them leaders in their industry, and more specific we want to know if entrepreneurshiphad something to do with this fact.

We would also like to comment on the confusion most entrepreneurship students have about

the size of the companies that can be considered to be innovative and entrepreneurial.According to most people only new ventures and small companies can be entrepreneurial. We would like to refer to Drucker (1985) who states that beliefs that large business cannotinnovate is just misunderstanding and lie. Large corporations in times of rapid change andinnovation, will simply not survive if they d0 not acquire entrepreneurial competence. Bigfirms have to learn how to survive and prosper, in order to reach stability and maybeleadership in their market and industry. They cannot do this unless they learn to be successfulentrepreneurs and develop management skills based on an entrepreneurial mindset. Largeexisting businesses, especially fair sized business, are the ones who already have the necessaryresources, which already acquired managerial competence and have the opportunity andresponsibility for effective entrepreneurial management. In other words, these kinds of firms

have the best capabilities for entrepreneurial leadership.

Theme and research purpose

The theme for this paper is the entrepreneurial process in corporate entrepreneurship. And,the purpose of this study is to describe the Toyota Company from an entrepreneurialperspective.

Research question

What is the relationship between innovation and opportunity and how can challengers in very

competitive industries use this combination to develop and become leaders?


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CONCEPTUAL FRAMEWORK

In our conceptual framework, our analytical tool, we use two main constructs: INNOVATIONand OPPORTUNITY. Working together this two at the central are corporate entrepreneurshipand the development of the firm. In relation to our main constructs we introduce some sub-constructs. For innovation we chose imitation and invention, as both of them can be seen asthe starting point of innovation process. For opportunity we have identified foresight andchange as driving constructs which create opportunity (see our literature review).

Figure 1. Our own conceptual framework and analytical tool.

RESEARCH METHOD

Our research is interested in studying corporate entrepreneurship, how a big corporation likeToyota still can be entrepreneurial. In accordance to our themes, we have decided to go deeplyinto the history of Toyota to explore its entrepreneurial process. Thus we would like to use the

qualitative case study approach, because in our research we mainly concerned aboutinnovation and opportunity which are difficult to measure statistically.

Our research was carried out by collecting secondary data. The reason is because we choosethe big span of time, looking back at the very beginning of Toyota in 1930s, we think that i tsreally hard to find the primary data that can cover all our concern. Moreover, we alsocontacted with the manager of Toyota in Sweden and he suggested that in our case, it wouldbe better to use the secondary data. Secondary data is either data or information includingbooks, articles, annual reports, meeting, speech or presentations. However in order toguarantee the credibility of the data, we tried to compare the data and the objectivity of themfound from different sources and chose the most reliable source. Within our sources, one of

the important sources of data is from Liker, which according to us is very reliable since he hasspent 30 years to study about Japanese company and is very well-known about the Toyota

INNOVATION

OPPORTUNITY

Imitation

Foresight Change

Invention

Corporate Entrepreneurship


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study with at least 4 books about Toyota, based on interview with people in the company andtheir partners.

We decided to carry out collecting and combining data in the chronological order with someremarkable events to feature the entrepreneurial process by showing the relationship betweeneffect and result in each event, interpreting them base on the theoretical framework toascertain the entrepreneurial process of Toyota and to answer our research question.

EMPIRICAL FINDINGS

Sources of opportunity

Japanese cars was a very unfamiliar concept for most Japanese at the beginning of 19o0s, the Japanese market was dominated by Ford and General Motors. The vision of setting up theirown automobile production came from the vision of Sakichi Toyoda and his son Kichiro in the30s. Regardless of the opposition coming the board of Toyoda Group that the automobilebusiness was too risky, after the visit to Ford plant and getting one million yen from selling theloom patent rights, Kichiro started up the Toyoda automobile department in 1933 and startedto produce the first 20 vehicles in 1935 by adapting the U.S mass-production technology totheir business (Hill, 2007).

The mass-production system, which also called batch productions system, to which almost99.9 % of all manufacturing companies subscribe, is the source of many problems. It is themost inefficient way to make products. This kind of production system is based on marketforecast. You make a guess, next year the company will sell half a million cars, so you planaccording to that and start making 500,000 cars. What happens if your forecast is wrong, andyou only manage to sell 250,000 cars? Eventually the company will have to restructure or go

bankrupt. Market demand should always come before the production (Leaninstituut, n.d.).

In the beginning of the 30s, Japan started thinking of setting up its own automobile industrybecause of the high demand of trucks as a direct result of the preparations for the invasion ofChina. The Japanese government promulgated a law requiring Toyoda manufacturing trucksfor the military. As a result, in 1936 Toyota managed to produce 1,142 vehicles 910 trucks, 100cars and 132 buses. The law also placed a duty on imported car resulting to the withdrawal ofboth Ford and GM in the Japanese market in 1939. Toyota became the only automobilemanufacturer in Japan, concentrating more on producing trucks to satisfy Japanese militarydemand (Hill, 2007).

Wars have always been source enormous changes, also in the markets. The damage by theWorld War II and the fact that Japan did lose the war created many problems for Toyota tryingto reestablish its business. In practice, Toyoda had to face both problems generated from itsown country and from the influence of the winners of World War II (Hill, 2007).

From the Japanese market: Unlike the previous period, when the demand for its business wasguaranteed by the government needs of truck, Toyoda met difficulties in finding the demandfor its business. The reason is that Japanese domestic market was getting smaller because ofdamage from the war. After the end of the world war, Toyota tried to raise productivity to five-or six-fold to turn out 1,000 trucks a month. Unfortunately, they couldnt sell all those trucks,ending up with a heap of unsold vehicles, leading Toyoda to the verge of collapse. In addition,

the understanding of Japanese fragmented demand and the starving for capital in Japan madethem discover that simply raising productivity were only half solution, more important were


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how to raise productivity and reduce costs. At the same time they had to adjust the productionto the models and the amounts demanded. The mass production model was not useful in the Japanese market, one of the managers said we learned that imitating American-style massproduction would be fatal in Japan(Hill, 2007; Shimokawa and Fujimoto, 2009).

Influence of the winner: When the American occupier came to Japan after World War II, theyforced the Japanese government to introduce laws, in which the bargaining power of labor hadbeen increased. The law created a lot of difficulty for companies when they wanted to cut offthe labor when the inflation started in 1948 the company was in terrible situation; its debt was8 times more than its total value. Together with the inflation, the new labor law leaded to theneed of reconstructing the organization-production system in more effective way to adapt withthe difficult situation of Toyota at that time. Many auto manufacturers from the winnercountry of World War II, North America and Western Europe, were so eager to come andexplore the Japanese market transformed Japan automobile market into a very competitivemarket. However, everything has two sides, the fierce competition in Japanese market comingfrom many US and EU automobile company made Toyota realized that it needed to expand to

the other market (Hill, 2007; Liker, 2004, p.18).

Unexpected inspiration

When Toyota managers visited Ford in the US for the second time they also came across themodern Supermarket, this was a completely new concept to them. In Japan, people went to amarket, to various stores to buy different foods. In contrast, the supermarket contained manystuffs, it is the last link in the distribution chain. Individual items are restocked as soon as theyare running low on the shelf, creating a process between customer consuming and stockrefilling. Moreover, this mechanism also helps reducing the costs because large inventoriesrequire larger space, which in return means high rents and places a premium on layout and

more flexible for easy stock replacement and quick stock turnover (McMillan, 1981; Liker, 2007,p. 23).

The supermarket posed a question is it useful and practical for Toyota to apply and reduce thecost while eliminating waste and optimizing the raw materials and labor in manufacturingautomobile. The first answer here was to supply only the necessary parts when they areneeded, by defining, controlling and reducing their lead time from initial entry of parts andraw materials to their actual use. Consequently, it will help eliminating waste from bothinventory costs and labor time on materials handling (McMillan, 1981).

Another inspiration came from a man by the name Shigeo Shingo, hes started a longassociation with Toyota as an external quality consultant in 1955. By that time he was alreadyan experienced industrial engineer. To him the principal of excellent manufacturing was notcomplicated. Organizations just need to decide they want to be the best, gather everyone intoimprovement teams, relentlessly improve every single day, and overcome the resistance tochange. To attain the goal of continuous improvement Shingo was relentless in stimulatingpeople to change for the better. He would help employees by asking questions and encouragethem to experiment. He believed that people had the answers within. But, Dr. Shingo had alsostudied Frederick Taylors and Frank Gilbreths learnings about time and motion studiescarefully. His big contribution was to realize the difference between process and operations,process being the total flow of manufacturing from the customer's order to the finishedproduct and operations, the actual production of the product. By focusing on process he wasable to find how to smooth out operations to be more efficient (Strategos Inc., 1998).


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The innovations of Jidoka and Just-in-time

Within the Toyota organization, four prominent entrepreneurs are credited with developingthe system: Sakichi Toyoda, who founded the Toyoda Group in 1902; Kichiro Toyoda, son ofSakichi Toyoda, who headed the automobile manufacturing operation between 1936 and 1950;Eiji Toyoda, Managing Director between 1950 and 1981 and Chairman between 1981 and 1994;and Taiichi Ohno, the Father of the Toyota production system and Kanban system (Becker,2007).

Jidoka ()The concept of intelligent automation called Jidoka was originated in loom manufacturinginvented by Sakichi Toyoda founder of the Toyota group after 1902. By observing his motherand his friends at work, Sakichi realized that spinning and weaving in loom manufacturingwere exhausted work. His concern was to create an automatic looms machine to relieve themof the punishing labor. As the result, the Automatic Power Loom was invented in 1924. Inthis machine, Sakichi invented weft-breakage automatic stopping device, the warp supplydevice and automatic shuttle changer in loom industry. These numerous revolutionaryinventions and constant improvements in technology resulted in machines that stopautomatically when unacceptable quality during the process of production was detected. Theseinventions evolved into broader system called Jidoka, which become one of the two pillars ofToyota Production System. The Toyota term jido is applied to the machine with device formaking judgments in it, and refers to automation with human touch concept, because loomswere automated and were performing under the monitoring and supervision of an operator.The mistake proofing concept of Jidoka refers to designing the operations in the way thatworkers are not tied to machines and are free to perform value added work. In other wordspeople could be put in charge of numerous looms, for their monitoring. Thus, two mainconcepts of jidoka were (Liker, 2003, p.16; Toyota-industries, n.d.; toyota.co.jp, n.d.;Becker,2007; Toyota TPS history, n.d.):

Stop automatically if any irregularity occurs/ never produce detects Do not make people to watch on machines constantly

Sakichi used that concept of Jidoka in Toyoda Automatic Loom Works, which resulted in atremendous improvement in productivity.

Figure 2. Jidoka concept (Toyota Japan, n.d.).


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Just-in-time, Maniatta ne ()The term Just-in-time, Maniatta ne in Japanese, is often used as a theoretical perspective ofmanufacturing and management. However, it should be mentioned that by its origins, just-in-

time (JIT) is not an academic theory, or concept created by consultants, it is a concept createdby the Toyota Motor Company. It was created in 1937 based on the ideas of Kichiro Toyoda, who took the company in to automobile manufacturing. He visited Fords manufacturingplants, and refined their mass production systems for his plants and developed the beginningsof JIT. It was his plan to switch entirely to a flow style of operations at car manufacturingfacility. According to Eiji Toyoda, Kichiro even created the manual script about that idea. Theidea of his concept was to eliminate waste by making exactly what was needed, when needed,and only in amount needed. Doing this would stop the need of storage warehouses, theamount of inventory would be reduced and thus that would cause the decrease of the amountof capital being consumed (Svensson, 2001; Becker, 2007; Art of Lean n.d.; Toyota TPS history,n.d.).

JIT became a principle of having the parts ready as they are needed, and do not making theinventories in the assembly plants and warehouses (Toyoland, n.d.). Eiji Toyoda in the articleof art of lean has stated about the consequences of Kichiros JIT idea: we would be able to sellour finished products before we would have to pay for the supplied material. With this method in

place we would require less operating capital. Eiji simply summarized the thoughts of Kichiroin the words: everyday make necessary items in the necessary quantity (Art of Lean n. d., pp.2-3). The improvements in the quality of car manufacturing, required lot of efforts, and Kichiro was moving to refine JIT manufacturing further, however unfortunately his efforts wasinterrupted b y WWII and thus he couldnt develop and apply it entirely into the company(Toyota TPS history, n.d.; Art of Lean, n.d.).

After the world war two (1945) Taiichi Ohno together with Shigeo Shingo was the ones whoplayed significant role in further development of the JIT concept and in Toyota ProductionSystem (TPS). He is considered to be the creator of TPS and father of Kanban. He started toexpand the concepts of JIT developed by Kichiro to reduce waste, and started to experimentwith methodologies to produce needed components for making high efficiency in production(Toyota TPS history, n.d.; Art of Lean n.d.; Becker, 2007). Initially he was assigned to developmore efficient productivity system, which should exceed American manufacturers efficiency,whose productivity at that time was 8 times higher than Toyotas. He visited Henry Ford, whowas able to make a car within 4 days, to study their production systems. After visiting the FordOhno said: If Ford can do it so can we (Strategos Inc., 1998, p. 3; Toyota TPS history, n. d.).

Ohno also borrowed the idea of pull system, which might was inspired by Americansupermarket. However Ohno also realized that mass production systems could not beapplicable in Japan, as Japanese market was too small and demand from the market was smallas well. Besides the size of the Japanese market Ohno, saw numerous other disadvantages inmass production. The mass production required warehouses and massive inventories, whichwas expensive, also if defect could be created, in mass production it would take a big scale.Moreover, the labor in mass production was assigned on single task job, and in the consumerperspective mass production was limiting the diversity of the end products. Thus Ohno refinedthe JIT, which was set of principles and techniques allowing the company to produce anddeliver the product in small quantities, right on time according to customer needs anddemands (Liker pp. 20-23; Beasly, n.d.; Hill, 2007).


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The innovation of the Toyota Production System

Many credit Toyotas success to aspect of Toyota Production System, created by Taiichi Ohnoafter the 1950s. He put in TPS, Jidoka concept to raise value added productivity of every workerand included JIT principals to work systematically to look for the waste and to stretch thelimited capital and equipment resources. In other words TPS gradually took shape on thefoundation of JIT manufacturing and Jidoka intelligent automation (Toyota TPS history, n.d.;Art of Lean, n.d.; Toyland, n.d.).

Jidoka, intelligent automation - automating the production system, which includeshuman inspection-only when defect is detected automatically, system will stop and notproceed until the defect is not corrected (Beasly, n.d.).

Just-in-time items are produced and move through the production system only whenthey are needed, and delivered in respond to customer demands.

Toyota production systems main focus developed by Ohno was on eliminating a waste. Someexamples of improvement that he did with JIT and included in TPS were to eliminate ofoverproduction, transportation of goods in assembly factories and inappropriate processing(Vorne, n.d.; Beasly, n.d.).

The modern Toyota Production System

According to one managing officer at Toyota, the company can briefly be summarized throughtwo cultural pillars: continuous improvement and respect for people. Continuous improvement,often called Kaizen, defines Toyotas basic approach of doing business. The true value of

continuous improvement lies in creating an atmosphere of continuous learning and anenvironment that embraceschange. Such an environment can only be created with respect forpeople. Toyota demonstrates this respect by providing employment security and seeking toengage team members through active participation in improving their jobs. Liker adds that thecompany engages people to support and contribute their ideas to the organization. Thisphilosophy implies more dependence on people, not less. It is a culture, not only a set ofefficiency and improvement techniques (Liker, 2003, p. xi-xii; Liker, 2003, p.35).

Kaizen ()- improvement

Masaaki Imai threw the word 'Kaizen' at the corporate world through his book Kaizen: The

Key toJapan's Competitive Successin 1986. His book was translated in fourteen languages andKaizen became a buzz all over the world. However, Imai was not the inventor of the concept,he learned about it from his close associations and travels with such legendary giants asShoichiro Toyoda and Taiichi Ohno and it reveals some of the secrets behind the success ofToyota. According to Imai, continues improvement is the means to achieve a corporatestrategy, not the strategy. Every corporation needs to make radical changes or some changes atleast, to survive in this very competitive and rapidly changing world. The author NormanBodek, was also among the firsts to bring Japanese manufacturing and managementtechniques to the West, explains that lean manufacturing (lean is just another name for TPS) isa never ending journey to be the most innovative, effective and efficient organization. Thepower and magic of lean is to continually discover the hidden opportunities existing all around

you. People have unlimited creative ability but they must be challenged, encouraged, andexpected to change. Continuous improvement need to become a way of life. Hiroshi Okuda,


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former CEO and chairman, Toyota Motors has said: I want everyone at Toyota to change or atleast do not be an obstacle for someone else wanting to change(Leaninstituut, n.d.; StrategosInc., 1998).

The original principles and practices of TPS are simplistic, and they still are despite the fact

that they have been developing for over 90 years. They have evolved by trial and error overmany decades, and many prominent men have contributed to their development. The tacitknowledge that underlies the modern Toyota Production System can be captured in some fewbasic rules. They guide the design, operation, and improvement of every activity, connection,and pathway for every product and service. All improvements must be made at the lowestpossible level in the organization, in accordance with the scientific method, under thedirection of a teacher. All process rules require that activities, connections, and flow pathshave built-in tests that are able to detect and visualize problems automatically (Becker, 2007;Spear & Bowen, 1999).

It is the continual response to problems that makes this seemingly rigid system so flexible and

adaptable to changingcircumstances(Spear & Bowen, 1999, p.4).

Continues improvements to the early TPS

We already mentioned Imai as one of the evangelists of kaizen. But continuous improvementis not enough. According to him, the most important challenge facing companies today,especially in manufacturing, is to establish a target about where they want to take thecompany in the next two, five and ten years. In manufacturing, there are only two mainsystems to choose from, one is the batch production system, and the other is what we call just-in-time. Only the latter have a future (Leaninstituut, n.d.). JIT and Kaizen leads us back to theToyota to the core of the production system; Just-in-time was one component of the early TPS,

lets examine how kaizen have made the system develop by looking at what it is today.

According to Liker (2003, p. 36) the principles of modern TPS can be organized in four broadcategories: 1) long-term philosophy, 2) the right process will produce the right results, 3) add value to the organization by developing people, and 4) continuously solving root problemsdrives organizational learning.

In this paper we dont have the space to cover all the components of the modern TPS, but wedo want to mention them to illustrate the growing complexity in the system in comparison tothe early TPS. All together the four categories already mentioned contain 14 principles; 1) base your management decisions on a long-term philosophy, even at the expense of short-termfinancial goals 2) create a continuous process flow to bring problems to the surface 3) use pullsystems to avoid overproduction 4) level out the workload (heijunka), work like the tortoise,not the hare 5) build a culture of stopping to fix problems, to get quality right the first time 6)standardized tasks and processes are the foundation for continuous improvement andemployee empowerment 7) use visual control so no problems are hidden 8) use only reliable,thoroughly tested technology that serves your people and processes 9) grow leaders whothoroughly understand the work, live the philosophy, and teach it to others. 10) developexceptional people and teams who follow your companys philosophy 11) respect your extendednetwork of partners and suppliers by challenging them and helping them improve 12) go andsee for yourself to thoroughly understand the situation 13) make decisions slowly by consensus,thoroughly considering all options; implement decisions rapidly 14) become a learningorganization through relentless reflection (hansei) and continuous improvement (kaizen)(Liker, 2003. pp. 37-41).


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As we can see, in figure 2 below, the modern Toyota production system still have Just-in-timeand Jidoka as its main pillars. But continuous improvement, Toyota Kaizen, is the spirit thatover the years has been the driving force behind the evolution of the system. People havecontinuously improved and changed the system and its processes.

Figure 2. The modern Toyota Production system (Liker, 2004. p. 33).

Trying to imitate TPS

The Toyota story has been intensively researched and painstakingly documented, yet what reallyhappens inside the company remains a mystery.(Spear & Bowen, 1999, p.1).

The principles and practices are simplistic but they are not easily to implement. Successfulcreation and implementation requires many things, among others; continuous change,commitment and support by management, and the participation of all employees within the

organization. Lean is not about imitating the tools used by Toyota in a particularmanufacturing process; its about developing principles that are right for the organization andpersistently practicing them to achieve high performance that continues to add value (Becker,2007; Liker, 2003). We believe that manufacturing companies should definitely study TPS. But,these principles can be used far beyond production assembly lines. For example, they can alsobe applied in professional service organizations.

In the beginning Japanese car manufactures were considered pure imitations of the leaders inthe industry; they were not considered as a threat and less an object worthy of admiration.Many years went by and Toyota did develop in silence, growing momentum, in the shadow ofothers. The Japanese wonder took many industries by surprise. Nowadays, according to Spear

& Bowen (1999), Toyotas famous production system has for a long time demonstrated itscompetitive advantage. For this reason companies, in a wide range of industries, have tried to


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imitate it. Yet most fail because most imitators only adopt TPSs obvious tools, withoutapplying the unwritten rules that really make it successful. The rules strictly specify how everyactivity in the organization should be performed. Deviations from the specifications becomeinstantly visible, prompting people to respond immediately with real-time experiments to getrid of problems in their own work, the result of this is a disciplined yet flexible and creative

community of scientists who continually push Toyota closer to its zero-defects, just-in-time, no-waste ideal. Mastering the rules and mindset of TPS takes time, but real understanding anddedication to the process make organizations stand a better chance of replicating Toyotasperformance, high quality and success.

The key to the Toyota Way and what makes Toyota stand out is not any of the individualelements... But what is important is having all the elements together as a system. It must be

practiced every day in a very consistent manner- Fujio Cho, President of Toyota Motor Company

ANALYSIS

Jidoka - innovation and opportunity

As Shane and Venkataraman argued that the starting point for every opportunity is theobservation and desire to improve the situation, the entrepreneur must possess sharp andprecise observation, evaluation ability to determine whether the resources are used in the beststate or not, as well as the ability to act in accordance with their evaluation. From anotherperspective, Hamel and Prahalad emphasized that when the entrepreneur uses foresight tolook to the future, how it could be, creating the future for its industry, he can create his own

real advantage. Both opportunity seeking and foresight can result in an improvement orinvention. As can be seen in our literature review, invention is different from innovation andSchumpeter argued in his innovation trilogy that the starting point of the innovation process isinvention, which embraces the technological change or generating the new idea. The samephenomena could be found in R&D departments of the organization, where the basic researchand development is involved in the creation of new ideas and technology which are thestarting point of the innovation as well. However, invention in this sense can take inspirationfrom anything that exists.

Jidoka, that later on became one of the main pillars of TPS, was one of the most importantinnovations of Sakichi, founder of Toyota group. The creation of the concept of Jidoka was

based on Sakichis important technological innovation in loom manufacturing. Consideringmanual spinning and weaving as the punishing labor, while he observed his mother andfriends working so hard, according to him, the only way to relieve them of the exhausted workwas to create an automatic loom. Shane and Venkataramans observation can be considered asthe starting point for Sakichi to create his opportunity. Besides, we also relate the inspirationfor his invention with the foresight of Hamel and Prahalad, when Sakichi foresaw the future ofhis industry, in which the automation can be used to reduce the labor force. As a result of theobservation and foresight, he created the automatic power loom, which was equipped with themistake proofing equipment, and could stop the manufacturing automatically when somekinds of problem were detected; this lead to the new idea of managing the employees in themanner that they would not be tied up on particular work. Thus the invention of Jidoka

concept involved two main points, the automation of manufacturing and increasing the valueadded performance of the employees. In our opinion the concept of Jidoka was an invention


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which is related to Schumpeters invention and also to the concepts of basic research anddevelopment, as the power loom was a big technological change at that moment, and theconcept automation and value added work of employees was generated as new ideas.

As we can see invention is the process of creation of something new, but where does it comes

from? How do people get new ideas? In fact, as we mentioned before observation is thestarting point of opportunity, we believe that observation of anything can be the starting pointof invention. Besides, we also consider foresight as a root of invention, because foresight is thecombination of knowledge and imagination of human, what can be in the far future. As wecan see here, the automatic power loom invention came from the observation and theforesight of Sakichi about his industry while the Jidoka as a concept was created by Sakichi and was inspired from his own technological development, the automatic power loom. Weconsider Jidoka to be a pure invention because both the machine and the concept of Jidoka areinvented by Sakichi without imitating others.

Just In Time - innovation and opportunity

According to Shane and Venkataraman, because of the different views of understandingopportunity, people have different ways to exploit opportunity. Their decisions wouldimmediately affect their strategies whether it would be better to pursue opportunity or sell itto others. The opportunity pursuing process can lead to the innovation process. As we alreadystated, Schumpeter's invention is the starting point of innovation process, however, imitationshould not be forgotten as it can be perceived as another starting point of innovation. Kirznerargued, on the individual level, that the entrepreneur discover errors, gaps and incompatibilityin the past failures of other organizations and perceives them as opportunities for innovation.He argued that such opportunities can be exploited by innovation, which could be created by

imitating the original idea, or correcting the detected errors in the past. Besides Kirzner, Zhangmentioned pure imitation in his imitation process, as one of the modes of imitation, howeverwe would like to make a distinction between Zangs pure imitation and Kirzners imitation, asthe first one is just simply copying or using others technology, whereas the latter one means tocreate something different but on the bases of existing error.

At the moment of its startup, Toyota Motor Company had a great support from thegovernment, who was in desperate need for trucks serving military purposes. The governmentsupported Toyota and kicked competitors out of the country by implementing heavyregulations on them. However, this demand for army trucks couldnt be met by Toyota. At thesame time, the demand for civil automobile was small and fragmented. In our opinion, the

great demand of trucks from the government can be perceived as an opportunity and can berelated to the exploit mode of opportunity in Shane and Venkataraman discussion aboutopportunity. However, choosing exploitation mode for opportunity is not an easy task. In fact,this opportunity placed Toyota between two choices, forcing them to make a wise choice,whether to concentrate only on manufacturing trucks according the order from government,or find a new way of manufacturing both trucks and civil automobile in one production line.They decided to go for the combination to be flexible with the low demand of civil automobileand high demand of trucks. This required a much more flexible system to manufacturedifferent models of both civil automobile and truck.

Kichiro Toyoda, who launched Toyota in to the car manufacturing industry, went to America

to see and study the Ford production systems. However, Kichiro didnt copy the idea of massproduction - which was the Fords production strategy at that time - instead he started to


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develop the new JIT concept which involved the production of exactly the amount of what wasneeded and in the exact time it was needed, to eliminate the usage of warehouses and todecrease the inventories. We relate the creation of JIT to Kirzners error detection, as Kichirosaw the incompatibility of mass production for Toyota's domestic market, and created JIT asthe correction of mass production for manufacturing in the Japanese market. It could be

argued that in some sense JIT was inspired and imitated from Ford. However, we don t thinkthat JIT was a pure imitation of the Ford production system because the concepts of JIT wasfundamentally different from concepts of the Ford mass production. Therefore we concludethat JIT can be perceived and related to the invention part from Schumpeters trilogy, as JIT inits context was entirely new and different from mass production.

One can perceive imitation as a negative process and can ask the question why individualsimitate and dont create. However, we disagree that imitation is a simple and negative process,especially in cases when imitation is not something obvious and is applied in another industry.It can be perceived just as inspiration for doing something similar but in other conditions, inanother area. Hence, in our opinion, imitation is at the same level of importance as inventionfor the innovation process. To have successful innovation process, both imitation andinvention should be developed as successful ideas. In that sense our idea about innovation isclosely related to Schumpeters innovation trilogy, with some modification though. In the caseof both Jidoka and JIT we think that they were innovations which were created to exploit theopportunities and they themselves in return also created new opportunities. Jidoka generatedthe opportunity of cost reduction, as it enabled Toyota to use less labor were it was neededbefore, and JIT created the opportunity to diversify the products according to the marketdemand.

The Toyota Production System - innovation and opportunity

Shane and Venkataraman argued that interpretation is rooted from the unique informationcorridors and cognitive properties of each individual, the perception of opportunitytherefore varies among people. They also commented that even though everyone has theunique interpretation and concept of opportunity, he needs to have the condition to create ordiscover the opportunity, whether changes in the outside environment urge them to adapt tosurvive or the desire to improve a situation urge them to find a new way to deal with the work.In our opinion, Drucker made it clearer by explaining how unexpected outside events createpressure on the firm and challenge entrepreneurs to adapt with it, innovating products,services, and so on. We believe that, the creative imitation strategy" in our literature reviewcan be one adaptation to change. According to Drucker, creative imitation is the strategy when

organizations imitates a product or service but evolves it, improves it and makes it better.Besides Drucker, Zhang in his imitation process also mentioned creative imitation and partialinnovation, where the first one means to acquire knowledge by focusing on tacit knowledge ofimitated product or technology and the last one embraces to imitate different things fromdifferent sources and to combine them under one matter as an innovation.

The failure of Japan in World War II and the damage because of the war generated manyproblems for Japanese companies including Toyota. Their efforts to raise the productivity inproducing trucks turned out to be a disaster for them when they ended up with a heap ofunsold vehicles. In addition the dramatic devaluation of Japanese currency made Toyota deepin debt. The competition from European and American automobile company as well as the

labor law introduced by American occupier only made the situation worse for Toyota. As canbe seen clearly, World War II was beyond the control of Toyota, in fact this unexpected


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outside events created a pressure of survival to Toyota, finding a new way to adapt to it orwaiting for its collapse.

To raise the productivity Ohno imitated Kichiro and went to Ford to study it, and get betterideas about high efficiency manufacturing. However with the same result as Kichiro, Ohnodetected the incompabilityof Fords mass production for the Japanese market. And this fact isagain related to Kirzners error detection. On the other hand, the imitated pull-system fromUS supermarkets, that contributed to the improvement of JIT concept we connectto Druckers creative imitation strategy and Zhangs creative imitation, because Ohno imitatedthe concepts and used the tacit knowledge from the supermarket's pull-system and adopted itto the car manufacturing industry. Ohno also creatively imitated the JIT concepts of Kichiro,and improved it by adding other waste eliminations like extra transportations of goods andextra time wasted for waiting for particular parts of the cars in the assembly factory. As we cansee from our empirical findings, Ohno is perceived as the inventor of TPS. Nevertheless wethink that TPS is no invention at all, it is an innovation that can be related to the partialinnovation of Zhangs imitation process. Because TPS was created on the foundation of the Jidoka and JIT concepts, where the Jidoka was already invented by Sakichi, and JIT wascreatively imitated from Kichiro (but improved later on). Besides this, we also believe that thetrip to America with the experience about mass production and supermarkets helped to enrichthe information corridor of Ohno and broaden his vision, which was necessary for the birth ofTPS.

As we went into details to analyze TPS and its pillars to see whether they are inventions orimitations, we reached the conclusion that the whole concept of TPS is an innovation, acombination of inventions and creative imitations. This combination was developed as abusiness idea that saved the company and later also played a significant role in itsdevelopment and future success. External changes put Toyota in challenging situations after1945, however the changes were perceived as opportunities, and to adapt to the changes and touse them as opportunities Toyota created TPS as an innovation. We think that the creation ofTPS was very entrepreneurial because it was innovation by keeping up with the changes,transforming problems into the opportunities in its own way.

Long-term philosophy

According to Knight there are different kinds of uncertainty, based on statistical measurability,these are; risk, ambiguity and true uncertainty. He also wrote that entrepreneurs have thesuperior ability to forecast market needs and technological directions and bear true

uncertainty. We argued that foresight is one important tool that management should use todevelop this superior ability, and we proposed that Slaughters definition of foresight is simpleyet very useful; foresight is opening to the future with every means at our disposal, developing views of future options, and then choosing between them. The use of 'every means' issupported also by Hamel and Prahalad, they use the term 'deep insight' and argue thatforesight combined with deep insight can give firms the opportunity to change its process andorganization for the future. Doing this will create new competitive space for them. Industryleaders think and act different; in a similar manner to the innovator they must create theirown ways.

The first of the 14 principles in the modern Toyota production system is that all managementdecision must be based on a long-term philosophy, even at the expense of short-term financial

goals.


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Unfortunately we dont have enough empirical findings to say much about Toyotas foresight.The explanation for this is not that it does not exist, it does. When we started this project wehad the ambition to also write about Toyotas ecological hybrid engine research and thetechnology. We did not have the space for doing so, but in the area of hybrids the foresightand long-term management decisions are much easier to find. This mean that we still think

'foresight' is one important construct.

Kaizen continuous improvement

Drucker argues that change is what creates opportunity. He mentions success, failure andprocess problems as changes of special importance. Tsoukas and Chia adds that organizationsare generated by change; these changes can be found both internally and externally. Thismeans that change is everywhere; in institutions, industry, competitors, customers, employees.However, this doesnt mean that organizations constantly change. Some organizations changeand adapt as the flow of water, others are inflexible as rocks. The responsiveness of

organizations is determined by managements receptivity to an internal and external realitythat is in constant change. Managers need to listen to employees; otherwise local initiatives,improvisations, experimentations and modifications will go unrecognized. Hamel andPrahalad expand this even further, managers must also listen and analyze changes outside theorganization.

According a managing officers at Toyota (also found in many other sources) one of thecompanies cultural pillars is 'kaizen'. Kaizen is the Japanese word for improvement. At Toyota,improvements must be made in accordance to the scientific method, and in the organizationallevel where the opportunity to improve occurs. As many other technology companies, Toyotais process oriented. The way problems in the workflow are perceived as opportunities relate to

Druckers idea that process problems are processes in need of change. But this specially relatesto Tsoukas and Chias 'microscopic change', i.e. small changes that always exist when peopleinteract with formal instruction defining how things 'should' be done. Another example of theimportance of change within Toyota is that senior management expect employees to change,or at least don't be an 'obstacle' for others to change. People have continuously improved andchanged the system and its process. The mindset of change needs to exist in individual andorganization. As Norman Bodek expressed it; continuous improvement need to become a wayof life.

Change is a neutral word, its meaning doesnt say if the change is for better or for worse. Wethink the word kaizen is interesting for several reasons. First, improvement is change, but notany change; it means change for the better. Second, the positive and constructive semantics of words is very important for people because positive words help construct positive thoughtsand actions. Inside Toyota they added word continuous to improvement, which makes themanagement meaning of kaizen even more powerful... continuous improvement. In the case ofinternal organizational change, 'improvement' is a much better word than change. We find the way Toyota manage microscopic change (see Tsoukas and Chia) very interesting andpowerful. We see this as microscopic opportunities that make micro innovation possible. Itseems that this systematic way to manage microscopic change leads to what we would like tocall micro-entrepreneurship, with this we mean when many small improvements accumulatethey have the power to improve a whole organization, including big corporations as Toyota.


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The importance of people

Schumpeter built his theory economic development on the proposition that the entrepreneuris the agent of change, a creative person who breaks established routines doing things in newways. Also in this part we consider it useful to use Tsoukas and Chias, management need to

listen to employees. As already mentioned, the first cultural pillar of Toyota is Kaizen, the other is 'respect forpeople'. Toyota engages team members through active participation in improving their jobs.Teams and collectivism are a natural part of organization. Its the people who bring the systemto life, people have unlimited creative ability. And, it seems to exist a very specialinterdependency between the organization and its employees. Most of this indicates that itexist strong support for the importance of Schumpeters entrepreneur as agent of change, andTsoukas and Chias idea that people are sources for change.

To be more correct we should probably use the term intrapreneur, instead of entrepreneur.We have not covered the concept of the intrapreneur in our literature review. Although we

talk about the entrepreneur we only mention him/her as an individual, not as part of a team,as part of an organization. More important, designing our analytical tool, we did not thinkabout the importance of training all employees to be better intrapreneurs and the implicationsof this. In this sense Schumpeters theories are not a perfect fit, the change in our case is notmacroeconomic development, more on organizational development. According to ourfindings, the organization of Toyota improves if and when its people improve. And inretrospective we really understand the fundamental and crucial importance of knowledge andlearning. The last principal in the Toyota way is "become a learning organization throughrelentless reflection and continuous improvement". Our analytical tool doesnt have much tosay about employees and organizational learning.

CONCLUSION

As we stated in the introduction in this paper our research question was; what is therelationship between innovation and opportunity and who can challengers in very competitiveindustries use this combination to develop and become leaders?

In this case study we found support for both creation of opportunity and innovation. The casecompany seems to have a long history of investing resources to discover opportunities, notonly in their domestic organizational field, but also in foreign markets. We found that they notonly look outside, they also seek opportunities in their organization heritage and the changes

within. The case company has long-term philosophy as the fundamental organizational value,and at the same time they are very receptive to changes, ranging from internal microscopicreal-time changes to external big long-term changes. But more important, we found strongsupport for the importance of the cyclic relationship between opportunity and innovation. Allopportunities, whatever the size or nature, are perceived as important; and are then matched with innovations. In the opportunity creation process some of the innovation starts out asimitations, others as inventions. They think about innovations as temporary countermeasuresthat can be changed, improved or replaced with a better innovation at any time. The theoreticidea of cyclic relation between opportunity and innovation in our model is illustrated inpractice by the corporation use of kaizen, e.g. continuous improvement. We think that weare at least partially right if we state that corporate entrepreneurship; the continuous creation

of opportunity, innovation and organizational improvement did play an essential role inToyotas journey to industry leadership. And, even though this is a single case study (with low


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generalizability) we do believe that other organizations interested in the entrepreneurialprocess can learn something from it.

We did find a gap between our model (conceptual framework) and the reality of the casecompany. Our model does not say much about people, the intrapreneur, knowledge andorganizational learning. Some parts of our findings need other theoretical tools in order to bebetter analyzed. For future research our recommendation is to also look at the importance oforganizational learning in corporate entrepreneurship. We think that Nonakas and othersresearch on knowledge creation could be interesting to explore together with more mainstreamentrepreneurship theory.

CONCLUDING REMARKS

For automakers, and many other firms, trust is fundamental, however to create trust firmsmust perform above customer expectation over a long period of time. In early 70s Toyota in US

market was seen as cheaply made and unsecure brand, but after the 80s annual improvementin the quality, reliability, performance and design resulted in taking Toyota to one of theleading positions in automobile industry. However, the reputation of Toyota quality started tofall after 2007, so did the brand value and market capitalization. The last year Toyota havebeen forced to recall millions of vehicles for gas pedal and floor mat problems (Autoblog, 2010;Washington Post, 2010). Consequently, these problems with quality have damaged customertrust and the reputation of Toyota as a superior quality.

From our empirical findings and analysis one can think that we perceive the performance ofToyota as perfect. After conducting this case study we do think Toyota is a great company, butas we already stated in introduction we are not representatives of Toyotas marketing

department. We concluded that the innovation of TPS have played significant role in Toyotassuccess; however, we are aware that lately they have been running in to some problems. Wedont know if qualityissues and global economic crises are the reasons of their problems, butour reflections is that nothing is perfect. What is wrong with Toyota today? Well, the answersto this question are for other studies to explore, and maybe the result will carry interestinginsights for Toyota, as they need to perceive also these new changes as opportunities andrespond them with some kind of innovative actions, as they have done many times in the past.


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REFERENCES

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