UNIVERSITY OF BRADFORD Bachelor Of Science · PDF fileAllion Alphard Auris Avanza Aygo bB Belta/Vios Caldina Camry/Camry Hybrid Century Coaster Corolla Corolla Axio Corolla Fielder

UNIVERSITY OF BRADFORD

in collaboration with MANAGEMENT DEVELOPMENT INSTITUTE

OF SINGAPORE

Bachelor Of Science (Hons) In International Business And Management

Applied Strategic Management

TOYOTA MOTOR COMPANY

(Japan)

Done by: Olesya Glukhova

2009

a

Assessment of the Strategic Management Models

Strategic Management helps to identify long-term targets by scanning operating

environments, evaluating organizational structures and resources, and matching these

resources to the challenges a firm faces.

Scanning of the environment been performed with the help of the Strategic

Management Models, such as PESTEL, Industry Life Cycle and Porter’s Five Forces.

PESTEL analysis based on the historical data, and can be used for forecasting. PESTEL

analysis assesses political, economical, socio-cultural, technological, ecological and

legal aspects of the environment. One or more factors will be dominant and impose

more pressure on a firm, thus must be assessed in depth.

Industry Life Cycle helps analyze the general industry condition. At different stages in

the ILC, different opportunities and key success factors are suggested. ILC shows the

general direction of the industry in which a firm is competing and providing guidance

on for strategy planning.

Porter’s Five Forces have been used to evaluate entry barriers, suppliers, customers,

substitute products and industry rivalry. These five competitive forces influence

profitability and stability of a firm. The better a firm can balance them; the stronger will

be the position of a firm within an industry.

All models in Macro-environmental analysis help to identify threats and opportunities

that company is currently facing or may encounter in future. When identified, a firm

must focus on reducing the threats and exploring the opportunities.

Assessment of internal Toyota’s resources had been performed based on Barney and

Hall frameworks. All resources of a firm providing some capabilities and if these

capabilities can be better than competitors’ they may bring core competencies and

b

competitive advantage. Toyota’s resources were critically examined and the conclusion

been drawn that Toyota has strong competitive advantage in an automobile industry.

Macro and Micro environmental analysis made it possible to identify a Toyota’s

position in the market. SWOT Analysis Matrix and The Grand Strategy Matrix were

used to recommend possible future strategy for Toyota. The models provide options for

possible future strategies based environmental factors and internal firm’s strength. Both

of the matrixes provided several options; other Strategic Management tools were used

for selection of the best strategic option. Selection has been done based on feasibility,

sustainability and attractiveness of the proposed strategies.

The selected option further been analyzed using McKinsey’s 7S framework to identify

gaps and corrective actions to be taken for new strategy implementation

Lastly, for successful implementation of the proposed strategy, the Balanced Scorecard

had been used to translate the new strategy to all Toyota’s stakeholders and the detailed

plan been developed with list of activities with allocation of timeframe for each.

Strategic Management Models been used as a base for the project. This makes it

possible to understand Toyota’s present situation and propose future strategy for

growth.

i

The Purpose of this Project is to analyze Toyota’s competitiveness within the

automobile industry and propose a strategy that will consolidate its position as the

market leader & ensure sustained future growth.

Findings of the project

1. The External environment in 2009, present two major Threats for Toyota. One

is the Economic crisis 2008/2009 which resulted in sales slump and

overcapacity. Another threat is the increased competition within the automobile

industry. Details can be found in chapter four.

2. Internal analysis of Toyota shows that the company has a strong competitive

position and has resources to fight the battle. Details can be found in chapter

five.

A summary of the key Findings are presented in SWOT the analysis matrix, Figure 1

and details and comments can be found in chapter six.

Figure 1: SWOT Analysis

Opportunity Threats New product development Market penetration New markets exploration

Economic cycle downturn Increased pressure from competitors

Strengths Weaknesses Market dominance Economies of scale Core strengths Management skills Innovation processes Product quality

Products not highly differentiated High fixed costs

Source: Adapted from Pearce et. al. (2007), created by Olesya Glukhova (2009)

Recommendation

Bases on the findings, this project recommends a Joint Venture with an established

Chinese auto manufacturer. This will ensure sustained future growth and an increase of

ii

market share. India and China are the fast growth markets with excellent potential.

Toyota already has established manufacturing chain in India and is developing it

further. China is the next market that Toyota’s rivals are targeting now. To penetrate

into China and obtain significant market share, Toyota needs to tie-up with a partner

that already has a substantial customer database and infrastructure in all the main

provinces. Detailed plans on implementing the proposed strategy are drawn in chapter

seven. The proposed total time for selection and evaluation of the strategic partner is

approximately three month. The proposed total time for implementation process,

including resource allocation, budgeting and training is six month. The proposed total

timeframe targeted for the complete process of integration is eighteen month.

1

Chapter 1: Introduction

1.1 Name of the Company and Corporate Profile

Toyota Motor Corporation founded in 1937 in Japan.

Toyota operates primarily in automotive business including design, manufacturing and

retail. It has assembly plants and distributors in many foreign countries, and it owns

subsidiaries that produce cars and car parts, trucks, steel, synthetic resins, and industrial

equipment. Its group includes Toyota, Lexus, Daihatsu and Hino brands. Over the years

Toyota has expanded its business profile to other fields of business such as housing,

financing, communications, marine, biotechnology, and others. Full Toyota corporation

profile can be seen in Figure 1.1

Figure 1.1: Toyota Motor Corporation Profile

Source: From Toyota Motor Corp. website (2009)

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1.2 Nature of Industry and Products

1.2.1 Nature of Industry

Automobile industry is complex and challenging, especially today, as it faces many

issues: plunging sales, frozen credit markets, global competition, increased gasoline

price and most recent demand to move towards “green”.

Toyota is the world’s leader in an automobile industry. Almost half of its sales Toyota

gained from Asia region, Japan domestic market contribute 36.4% to total sales in fiscal

2009 year (Toyota Annual Report 2009).

For the first time in 70 years of operation, Toyota incurred losses of USD $4,500

million and negative growth of -20.4% in fiscal 2009 (Toyota Annual Report 2009).

Toyota is coping with these challenges, through innovation and adapting fast to the

changing scenario and has raised its market share in Japanese market to 50% in Oct

2009 (Business Week, 01 Nov).

3

1.2.2 Products

Toyota Motor Corporation (Japan) is manufacturing sedan cars, SUV, MPV, trucks and

hybrid models. Toyota’s wide product range can be found in Figure 1.2.

Figure 1.2: Toyota Products

Allion Alphard Auris Avanza Aygo

bB Belta/Vios Caldina Camry/CamryHybrid

Century

Coaster Corolla Corolla Axio Corolla Fielder Corolla Rumion / Scion xB

Corolla Spacio Corolla Verso Crown Athlete Crown Hybrid Crown Majesta

Crown Royal Dyna Estima / Previa FJ Cruiser Harrier / Harrier Hybrid

Hiace Highlander /Highlander Hybrid

Hilux Surf / 4Runner

Ipsum Isis Source: Modified from Toyota Motor Corp website by Olesya Glukhova (2009)

4

Figure 1.2: Toyota Products (continued)

ist / Scion xD Kluger / KlugerHybrid

Land Cruiser 70 Land Cruiser 200 Land Cruiser Cygnus

Land Cruiser Prado Liteace Mark X / Reiz Mark X Zio Mark II Blit

MR-S Noah Passo Premio Prius

Probox Progrès Ractis Raum RAV 4

Regius Ace Rush Scion tC Sienta Succeed

Townace Toyoace Vitz / Yaris Voxy WISH Source: Modified from Toyota Motor Corp website by Olesya Glukhova (2009)

5

1.3 Processes and Technologies Involved

1.3.1 Processes

Toyota processes include: Technology development, Product design, Manufacturing,

Marketing, Distribution, and Service.

1.3.2 Technologies

Toyota is constantly developing new processes and technologies in car manufacturing

and servicing. Toyota Corporation technological set can be found in Table 1.1.

Table 1.1: Toyota’s Technological Set

Environmental Technology

focuses on development and production of eco-friendly cars such as hybrid and electric

models as well as reduction and recycles waste during manufacturing process.

Safety Technology

is one of the competitive factors and Toyota’s ambition is to develop world leading

safety technologies in automobile industry.

ITS Technology

strives to combine automobiles with social infrastructures in a ubiquitous-network

society

Personal Mobility Technology

is a development of new, future technologies, some of the products been displayed in

the exhibitions, based on the theme “The Dream, Joy and Inspiration of Mobility in the

21st Century”

Robot Technology

is highly used in automobile manufacturing.

Source: Adapted from Toyota Motor Corp. website, created by Olesya Glukhova (2009)

6

1.4 Competitors, Suppliers and Customers:

1.4.1 Competitors

Toyota is a market leader. Currently Toyota has the dominating market share with 50%,

followed by Honda and Nissan. They are the Japanese Big Three Automakers. Figure

1.3 briefly describes Toyota’s competitors in the local Japanese market.

Figure 1.3: Competition Overview

Company name Key corporate factors

Honda Motor Company

Japan’s number two automaker and the world’s

biggest motorcycle producer. Large portion of

sales comes from automobiles that sold outside of

Japan. Honda has two manufacturing plants in

Japan producing SUVs, trucks, Crossovers, Vans

and energy efficient hybrids.

Nissan Motor Company

Following Toyota and Honda, Nissan is on the

third place in automobile industry in Japan.

Nissan has sixteen production plants in Japan and

manufacturing vide range of cars, trucks, SUVs,

crossovers and hybrids

Source: Adapted from Honda and Nissan corporate websites, created by Olesya

Glukhova (2009)

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1.4.2 Suppliers

Toyota has its own network of suppliers for various automobile parts. Toyota is

concentrating only on the development of the main components such as the engine and

new technologies in design and manufacturing. Some of the Toyota’s suppliers and

their general information are represented in Figure 1.4.

Figure 1.4: Suppliers Overview

Company name Parts supplied and general information

Yokohama

Tyres

One of the leading Japanese manufacturers of

tires for high performance, SUV, Light truck,

OTR and passenger cars. Operating worldwide.

Koito Manufacturing

Company

Headlamps

The Koito Group specializes in manufacturing

lighting equipment and electrical goods and has

10 production facilities in 9 countries.

Denso Corporation

Auto parts

Denso, a leading supplier of advanced automotive

technology, systems and components for all the

world's major automakers, operates in 32

countries

Aisin Seiki Company

Transmission

Aisin Group offers a wide range of products

covering almost every automobile-related field,

including drive train, body, brake & chassis,

engine and information related products

Source: Adapted from respective companies websites, created by Olesya Glukhova

(2009)

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1.4.3 Customers

Toyota’s customers are medium income group of people that values quality and

reliability. Toyota manufactures cars for family usage – MPVs, office and individual

usage – sedans and those who like off roads trips usage – SUV, 4 wheel drives.

High income group addressed by Lexus product line and is not covered in this project.

1.5 Project Objective

Project objective is to propose a strategy to sustain Toyota’s Competitive Advantages

and Market Leadership in automobile business in Japan.

1.6 Scope of the Project

This project will be covering only Toyota Motor Corporation Japan and Toyota’s

automobile brand line only.

1.7 Project Title

The project title is “Sustaining Toyota’s competitive advantages in Japan’s automobile

industry”

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Chapter 2 – Methodology

2.1 The Approach

This project follows Lynch’s (2006), the prescriptive approach in developing a business

strategy. Three phases are developed and sequentially connected. Project starts with

Strategic Analyses, which include Macro and Micro environmental analysis and

assessment of corporate vision and objectives. Next is Strategic Development, which

includes development of the strategic options, rational selection from these options and

selection of a strategy, and identification which resourced will be needed for

implementation. And the final phase is Strategy Implementation includes translation of

chosen strategy to all Toyota’s stakeholders and detailed action plan.

2.2 Data Sources

This project is based on secondary data sources. Table 2.1 summarizes the sources and

their contribution to this project.

Table 2.1: Data Sources for the Project

Data source Information obtained

a) TV news Latest updates on Toyota and the

automobile industry

b) Business magazines Articles on related topics

c) Business newspapers Articles on related topics

d) SM text books Models and theory for project bases

e) Internet – corporate websites Information from the respective company

viewpoints

f) Internet – news, financial analyses,

general information

Information from independent sources,

their analyses and comments

Source: Created by Olesya Glukhova (2009)

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Chapter 3: Literature Review

3.1 Basis for Literature Review

This project is based on secondary data sources and it is not approved by the company;

thus, primary sources are unavailable.

The project is done with the purpose of better understanding Strategic Management

concepts and to be able to apply it in a real workplace.

Various sources were reviewed for understanding Toyota Motor Co., and the

automobile industry which it is competing in. The structure for this project is based on

Strategic Management text books: Lynch (2006), Hoskisson et al., (2007), Pearce et al,

(2003 and 2007) and others.

3.2 Introduction and General Information on Automobile Industry

Internet, TV news, business magazines and newspapers were used to obtain general

information for introduction part of the project.

3.3 Macro-Environment

Based on the framework of Strategic Management, Macro environmental analyses were

performed with the help of following models:

a) PESTEL analysis framework concept shown in Table 3.1.

Table 3.1: PESTEL Analysis

Factor Could include: Political e.g. government support and involvement in businesses Economic e.g. interest rates, exchange rates, national income, inflation,

unemployment Social e.g. ageing population, attitudes to work, income distribution Technological e.g. innovation, new product development, rate of technological

obsolescence Environmental e.g. global warming, environmental issues Legal e.g. competition law, health and safety, employment law Source: Adapted from Lynch (2006)

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b) Industry life cycle concept in Figure 3.1

Figure 3.1: Industry Life Cycle

Source: Adapted from Lynch (2006)

Introduction Growth Maturity Decline

Demand high-income buyers

increasing market penetration

mass market, replacement, repeat buying

knowledgeable customers

Technology

competing technologies

standardization; rapid process innovation

well-diffused technological know-how; quest for technological improvements

Products

poor quality; wide variety; frequent design changes

design & quality improves; dominant design emerges

standardization lessens differentiation; efforts to avoid commoditization by branding

commodities the norm

Manufacturin

g & Distribution

short production runs; high-skilled labor; specialized distribution channels

capacity shortages; mass production; competition for distribution

emergence of overcapacity; deskilling of production. long production runs; distributors carry fewer lines

heavy overcapacity; re-emergence of specialty channels

Trade manufacturing shifts from advanced countries to poorer countries

Competition few companies entry, mergers & exits

shakeout; price competition

price wars; exits

Key Success Factors

product innovation; establish credible image of firm and product category

design for manufacture; access to distribution; building the brand; process innovation

cost-efficiency through capital intensity, scale efficiency, and low input costs; high quality; fast product development

reduce overheads, buyer selection; signal commitment; rationalize capacity

12

c) Industry attractiveness concept in Figure 3.2

Figure 3.2: Industry Attractiveness Model

Source: Adapted from Pearce et. al. (2003)

13

d) Porter’s Five Forces Model concept in Figure 3.3

Figure 3.3: Porter’s Five Forces Model

Source: Porter (1991)

Strategic management models were used to carry out Macro environmental analysis to

identify Threats and Opportunities for Toyota.

14

3.4 Micro-Environment

Strategic Management concept used to analyse a firm’s resources (tangible and

intangible, please see in Table 3.1) that provide capabilities and can lead to core

competencies. VIRO framework in Table 3.2 helps to identify which core competencies

are sustainable and can lead to competitiveness.

Table 3.1: Internal Resources of a Firm

Tangible Resources: Description Financial The firms borrowing capacity

The fir’s ability to generate internal funds Organizational The firm’s formal reporting structure and its formal planning,

controlling, and coordinating systems Physical Sophistication and location of a firm’s plant and equipment

Access to raw materials Technological Stock of technology, such as patents, trademarks, copyrights,

and trade secrets Intangible Resources: Human Knowledge, trust, managerial capabilities and organizational

routines Innovation Ideas, scientific capabilities, and capacity to innovate Reputation Reputation with customers, brand name

perception of product quality, durability, and reliability reputation with suppliers

Source: Adapted from Barney (2002) and Hall (1992), created by Olesya Glukhova

(2009)

Table 3.2: VIRO Framework

Quality of the competitive advantage

Description

Valuable Resources that enable a firm to conceive or implement strategies that improve efficiency or effectiveness

Rare Resources that can not be possessed by large number of competing firms

Imperfectly imitable Resources that have a combination of three reasons: unique historical conditions, causally ambiguous, and social complex

Organisationally supported

Resources that are strategically supported by a firm and make them either rare or imitable and non-substitutable

Source: Adapted from Barney (2002)

15

3.5 Strategic Evaluation and Strategy Formulation

SWOT analysis matrix (Figure 3.5) and The Grand Strategy matrix (Figure 3.6) were

used to understand Toyota’s position in automobile industry and develop strategic

options. Further, these options were subjected to selection process. Lastly McKinsey’s

7S framework, Figure 3.7, been used to identify what actions need to be taken and what

resources Toyota will be needed for implementation of recommended strategy

Figure 3.5: SWOT Analysis

Source: Pearce II et.al. (2007)

16

Figure 3.6: The Grand Strategy Matrix

Rapid Market Growth Quadrant II 1) Market Development 2) Market Penetration 3) Product development 4) Horizontal Integration 5) Divesture 6) Liquidation

Quadrant I 1) Market Development 2) Market Penetration 3) Product development 4) Forward Integration 5) Backward Integration 6) Horizontal Integration 7) Concentric Diversification

Quadrant III 1) Retrenchment 2) Concentric Diversification 3) Horizontal Diversification 4) Conglomerate Diversification 5) Divesture 6) Liquidation

Quadrant IV: 1) Concentric Diversification 2) Horizontal Diversification 3) Conglomerate Diversification 4) Joint Venture W

eak

Com

petit

ive

Posi

tion

Slow Market Growth

Stro

ng C

ompe

titiv

e Po

sitio

n

Source: Christensen et al., (1984)

Figure 3.7: McKinsey’s 7S Framework

Source: Lynch (2006)

17

3.6 Strategic Implementation

According to Lynch (2006), successful implementation requires identification of

general strategic objectives, formulation of specific plans, resource allocation and

budgeting and monitoring and control procedures. The Strategic Implementation

process can be found in Figure 3.8. Kaplan and Norton (1996) also suggest that strategy

should be understood by all company’s stakeholders. Balanced scorecard concept in

Figure 3.9 been used to translate recommended strategy to Toyota’s stakeholders.

Figure 3.8: The Basic Implementation Process

Source: Lynch (2006)

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Figure 3.9: Balanced Scorecard

Source: Kaplan and Norton (1996)

19

Chapter 4: Macro-Environmental Analysis (Japanese Market Only)

4.1: Environmental Basics

To begin with the Macro-Environmental analysis, basic factors such as market size,

market growth and market share have to be assessed first.

a) Market size – Large. Total domestic annual sales in Japan for 2008 – USD

$96.255 mil. Toyota’s 34% market share in 2008 brought USD $32.727mil

(Toyota’s Annual Report 2009).

b) Market growth – Shrunk by 30% in 2009, Toyota production down 28%

(Bloomberg press 13 May 2009).

c) Market share – Toyota expanding its market share in Japan and by October 2009

acquired 50% of domestic market (Business Week, 01 Nov).

4.2: Dynamics of the Environment

Analysis of the degree of turbulence in the environment in 2009 is made based on

Ansoff matrix of assessing the dynamics of the environment according to Lynch (2006).

a) Changeability – Automobile industry depends on the global Economic scenario

which is highly dynamic. However, events which affect automakers are

reasonably familiar – similar cycle is repeated every few years.

b) Predictability – Rapid changes in international economy need a rapid response.

The future trend in the domestic (Japanese) market can be predicted based on

general global trends and needs of the global consumers.

Both factors - changeability and predictability of the environment in automotive

industry keep turbulence at moderate or medium level.

4.3: General Environment

The best tool to assess the general environment is a PESTEL framework. Although a

PESTEL analysis relies on historical events, it can be well used in forecasting the

future. Table 4.1 combined general environmental analysis and its implication for

Toyota and other automakers.

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Table 4.1: PESTEL Analyses (Japan) Factor Current environment Threats/Opportunities for Toyota

Eco

nom

ical

Japan’s economy heavily depends on export. Economy crisis (2008-2009) set Japan into recession. Its national debts equal to 170.4% of GPD or $ 7.47 trillion Export in 2009 decline by more than 40%, cars export to US down by 71% Japan’s GDP growth negative 7.2% Unemployment rate hit highest in past three years 5.7% in July 2009 Consumer expenditure down by 1.1% Currency fluctuation – Japanese Yen kept strong in currency exchange (Trading Economics 2009)

Main threat for automakers in 2008-2009. Due to gloomy economic outlook demand for cars reduced, causing overproduction, excess capacity and idle resources. Consumers postpone purchase of new cars and looking for cheaper options. Strong yen made Japanese cars less competitive in the global market affecting export of Toyota’s cars.

Polit

ical

Japan supported automakers with subsidies on car purchase during crisis till November 2009 Europe and America also provide help to automotive industry However, some countries took protectionism policy and increase import barriers for cars (Eg. Russia doubled import taxes)

Potential threat Political support locally helped to reduce threat of economic crisis (2008-2009) Potential threat may come from protectionism policies of Toyota’s primary export markets

Soci

o-cu

ltura

l

Changes in lifestyle made an automobile a necessity Dual income often results in additional car in the family New trends demand for eco-friendly, fuel-efficient and electric automobiles

Opportunity for automakers to develop new products and enjoy first-mover advantages and super normal profits from such products Toyota successfully introduced fuel-efficient models

Tec

hnol

ogic

al Technology development allows

innovation and improvement in car production. Automotive industry R&D focuses on fuel efficiency, combined energy sources and safety of the cars. Technology development include hybrid, CNG, LPG, and electric cars

Opportunity for automakers. New technologies help to develop more sophisticated products, increase efficiency and reduce waste in automobile production

Env

iron

men

tal

Environmental issues become popular nowadays and force automakers look for new ways in contribution to saving Gaia. Manufacturers ought to reduce waste, improve efficiency of their products, reduce energy consumption and generally become “greener”

Opportunities for automakers. Assessing environmental issues early can bring company to the superior performance and profits (Eg. Toyota Prius is the best selling and most popular hybrid car model in Japan and Europe) Toyota works on renewable energy sources, recycling waste and combined technology to produce ‘eco-friendly’ cars

Leg

al

All cars must be tested on safety aspects before they reach consumers Employment and safety law has to be taken into consideration in manufacturing process Products safety issues must be assessed by automakers

Opportunity for big established automakers Testing equipment is costly and imposes barriers for small companies that wish to enter auto-market

Source: Adapted from Lynch (2006), created by Olesya Glukhova (2009)

21

4.4 Industry Life Cycle

An industry life cycle analysis helps to identify the stage of the evolution process in the

given industry. According to Porter’s framework, automotive industry can be classified

as a ‘mature industry’; details in Table 4.2.

Table 4.2: Industry Life Cycle Analysis

a) Cars are generally becoming a necessity and their appeal is to a mass market with

repetitive buying behavior.

b) Customers are knowledgeable and price sensitive and looking for better value and

switching brands.

c) Car manufacturers invest heavily in R&D to sustain competitive advantage in the

industry. Technological advances allow improvements in products and processes

involved in car manufacturing.

d) Toyota is a market leader in the automobile industry and it is working on cost

reduction to sustain its position.

e) Profits are under pressure. Comparison analysis on the global scale, shows that

managing costs in areas of purchasing of raw material, production and delivery of

finished goods is essential. Accordingly to Larry Kudlow, in 2007 GM sold 9,370,000

vehicles and incurred loss $38,730 mil while Toyota sold 9,366,418 vehicles and made

profit of $ 17,146 mil. The economic crisis 2008/2009 hit automakers badly reminding

carmakers that cost control is the major issue. 2009 second quarter Toyota incurred a

loss of $ 861 mil. while Hyundai posted profit of $ 697 mil.(Business week, 23 Oct,

2009)

f) Competitors emphasize on quality and safety of cars. There is little product

differentiation and therefore car makers attempt to innovate in such areas as safer

design, comfort, and fuel efficiency to attract customers.

g) Another aspect that valued by customers is after-sale support – servicing and spare

parts availability. In the Asian region, Toyota spare parts availability and price

affordability is still the best. This makes Toyota cars maintenance easier and cheaper.

This builds customers confidence and loyalty.


22

Although the automobile industry is in maturity stage, technological change is bringing

elements of growth and is revitalizing an old industry. Companies that constantly work

on innovation ultimately influence the growth curve of the automotive industry.

4.5 Industry Attractiveness

Automobile industry is currently at the medium attractiveness based on PESTEL

analysis and Toyota, being the market leader, has high business strength, taking this

equation to plot in the Table 4.3. Toyota is been advised Invest and Growth, but also

careful watch out for its competitors.

Table 4.3: The Industry Attractiveness-Business Strength Matrix

High Invest and growth

TOYOTA Invest and growth suggests: 1) Build selectively on strengths 2) Define implications of leadership strategy 3) Avoid vulnerability – fill weaknesses

Selective investment/ monitor position

Medium Invest and growth

Selective investment/ monitor position

Harvest or Divest

Low Selective investment/ monitor position

Harvest or Divest Harvest or Divest

High Medium Low Com

pany

’s C

ompe

titiv

e Po

sitio

n

Market Attractiveness

Source: Adapted from Pearce II, et al. (2003), created by Olesya Glukhova (2009)

4.6 Key Success Factors

As the automobile industry has been identified in its maturity stage, following key

success factors should be considered in allocation of recourses by auto makers:

a) Safety of the cars

b) Reliability of cars

23

c) Maintainability – spares availability and easy replacement

d) Environmentally friendly – ‘green’ move

e) Cost efficiency and high utilization of fixed assets

f) Scale of production

g) Low input cost

h) Low labor cost

Car manufacturers need to assess these essential factors to achieve success in the market

and deliver value to their customers. Key success factors require optimum allocation of

resources and innovation. Toyota is constantly working on new developments by

improving safety and technology.

4.7 Competition within Industry

Porter (1991) had identified five forces of competition within an industry. Modern

approach added one more competitive force from compliments, making it six forces of

competition. Investigation of forces and its implications are summarised in Table 4.4

24

Table 4.4: Six Forces of Competition within Industry in Japan Factor Current environment Level of threat for Toyota

The

bar

gain

ing

pow

er o

f su

pplie

rs

Many suppliers Substitutes are available; firms are offering similar products at lower prices Suppliers provide only some parts, and not main components of automobiles Processes of automakers protected internally

Bargaining power of suppliers is low Being the biggest auto manufacturer in Japan, Toyota exercises its buying power over suppliers. Production of Toyota in fact affected its suppliers operations; when Toyota reduced production, its suppliers also had to reduce their output (The Japan Time, 07 Mar, 2009)

The

bar

gain

ing

pow

er o

f buy

ers Wide variety of cars with little

differentiation in products and prices Selling price is an important factor in purchase decision Switching cost for customers is low. Toyota owns the distribution network and there is no threat of backward integration.

Bargaining power of buyers is high due to similarity of the products and prices Toyota developed its own distribution network to reduce bargaining power of buyers through direct distribution and competitive pricing. Toyota reputation and quality are helping it to keep its customer loyal to its brand

The

thre

at o

f pot

entia

l ne

w e

ntra

nts

Cars production required high capital investments due to: minimum economy of scale in production, building distribution channels and infrastructure of support services, high R&D and advertising expenses Automobile industry associated with certain risk and therefore customers choosing established automakers that they trust, making it unlikely to switch to a newly established company

The threat of potential new entrants is low Auto production has high barriers of entry and exit. Set up a car production line requires a high capital investment and minimum economy of scale. Exit barriers are also high, as the car production assembly can not be easily diverted for manufacturing other products. Furthermore, new entrant will need to set-up the infrastructure of distribution and support services channels as well as prove its product reliability

The

thre

at o

f su

bstit

utes

Public transport, motor vehicles, and other mode of transport may become substitute for cars However, car obsolescence is not seen in near future

The threat of substitutes is low High fuel cost may push more people to public transport; however, it will not create a real substitute for cars. Car is a necessity that owners value for its convenience, flexibility and even status

The

ext

ent o

f co

mpe

titiv

e ri

valr

y

Many competitors, some are similar size as Toyota, fighting for bigger market share Market is saturated with slow growth Fixed costs are high Differentiation is small; competitors providing comparable value balancing cost and quality Exit from industry is very costly

Fierce competition Automakers competing on innovation and prices Require development of sustainable competitive advantage to stay in the industry

The

thre

at o

f su

pple

men

tary

pr

oduc

ts

Supplementary products are insignificant to the car manufacturing business Companies that producing GPS, DVD players, and other accessories won’t be able to start car production due to high entrance cost and expertise required in car manufacturing

Not a threat for automakers

Source: Adapted from Porter (1991), created by Olesya Glukhova (2009)

25

4.8 Competition Analyses

In order to understand Toyota’s position in the automobile industry, it is necessary to

analyse major or immediate competitors and their profiles in depth. Japan’s the Big

Three Automakers include Toyota, Honda and Nissan. Tables 4.5 and 4.6 provide

details on Toyota’s two competitors.

26

Table 4.5: Competitor Analysis – Honda

Merits Honda Motor Analyses

G

ener

al

info

rmat

ion

Honda has been founded in 1946, based in Tokyo, Japan. Currently it is a second largest automaker in Japan right after Toyota. Honda develops, produces, and manufactures various motor products, ranging from small general-purpose engines and scooters to specialty sports cars. The company major segments: Motorcycle, Automobile, Financial Services, and Power Product and Other.

O

bjec

tives

Honda Motor Co., Ltd. operates under the basic principles of "Respect for the Individual" and "The Three Joys" — commonly expressed as The Joy of Buying, The Joy of Selling and The Joy of Creating. "Respect for the Individual" reflects our desire to respect the unique character and ability of each individual person, trusting each other as equal partners in order to do our best in every situation. Based on this, "The Three Joys" expresses our belief and desire that each person working in, or coming into contact with our company, directly or through or products, should share a sense of joy through that experience.

R

esou

rces

Total assets: USD $124.98 billion Employs : 181,876 people worldwide Revenue in 2008: USD $133,364 million which came to Net profit of USD $6,667 million Growth YOY in 2008 was 1%

Past

rec

ord

of

perf

orm

ance

The first production automobile from Honda was the T360 mini pick-up truck Honda was the first Japanese automobile manufacturer to release a dedicated luxury brand, Acura in 1986 During economic crisis increased sales by 1% while Toyota insured losses

Prod

ucts

and

serv

ices

Products: motorcycles, automobiles, power products The Automobile segment include passenger cars, minivans, multi-wagons, sport utility and mini cars. Honda has won many awards for initial quality and customer satisfaction. Honda automobiles are reliable and generally fuel efficient Products quality is good, though perceived to be lower than Toyota According to Honda’s CEO, hybrid model Insight is disappointing for Honda. This is directly opposite to Toyota Prius hybrid. Although Prius is more expansive than Insight sales of Toyota are much higher.

Lin

ks w

ith

othe

r or

gani

zatio

ns Not linked to other automobile companies

Pres

ent

stra

tegi

es

Honda pursuing market development trough cost leadership strategy. Honda plans to reduce cost and move flexibly around by shifting operations to the countries of demand: moving production to China as a cheaper alternative while using only 70% of capacity in Japan and reducing the number of car models sold only in Japan Honda also target to increase market production and market share in China by 100 car dealership a year; this year already increased by 16%.


27

Table 4.5: Competitor Analysis – Nissan

Merits Nissan Motor Analyses

G

ener

al

info

rmat

ion

Nissan has been found in 1931 under the name of Datsun. The Nissan name was first used in 1930 and Nissan Motor as a company emerged in 1934. Nissan is the third largest automaker in Japan, right after Toyota and Honda. Nissan models include sedans, pickups, sports cars, and SUVs. Almost 45% of its stakes owned by Renault

O

bjec

tives

Nissan vision:” Enriching people’s life" The mission is to enrich people's lives, building trust with our employees, customers, dealers, partners, shareholders and the world at large. Restructuring the company to reduce cost. Going towards ‘green’ by putting electric car development at the high priority

R

esou

rces

Total assets: USD $124.98 billion Employs : 186,336 people worldwide Revenue in 2008: USD $93,070 million which came to Net profit of USD $2,580 million Growth YOY in 2008 was (4.7%)

Past

rec

ord

of

perf

orm

ance

From 1993-2002 Nissan partnered with Ford to market a consumer-friendly minivan: The Mercury Villager and the Nissan Quest. In 1966, Nissan merged with the Prince Motor Company, bringing into its range more upmarket cars, including the Skyline and Gloria From 1950’s Nissan expanded into worldwide markets. In 1999, Nissan was facing severe financial difficulties, and entered in an alliance with Renault S.A. of France. Now Renault controls more than 45% of Nissan.

Prod

ucts

an

d se

rvic

es Products: Automobiles, engines, electronics, communications, etc.

Nissan, with its GT-R model, has won one of Japan’s most coveted award - Most Advanced Technology Award at the Car of the Year Japan Awards 2008 - 2009.

Lin

ks w

ith

othe

r or

gani

zatio

ns Alliance with Renault since 1999

Car production in China in cooperation with Gongfeng Motor Croup Co

Pres

ent

stra

tegi

es Nissan pursues market development and penetration through its environmentally

friendly cars. Nissan going aggressively towards electric cars and plans to setup an electric-car manufacturing plant in Guangzhou, China Nissan targets 20% growth in China in 2010.


28

4.9 Customer Analyses

Toyota customers are all those who people who travel by car. However, potential

customers also include people who travel by public transport, taxis and motor vehicle.

Toyota Motor Company covers different market segments. High income people are

targeted by Lexus brand, industrial segment that require heavy machinery and

commercial vehicle by Hino brand, cheap mini vans by Daihatsu. The widest group of

middle income people is targeted by Toyota brand. Toyota brand covers large market

segments and therefore it has the most product variety in its portfolio to appeal to a

variety of consumers.

29

4.10 Summary of Opportunity and Threats from Macro-Environment

Summary on the Macro-environment is presented in Table 4.7 with comment on

whether it presents opportunity or threat for Toyota.

Table 4.7: Summary of Findings from Macro Environmental Analyses

Factor Opportunity or Threat for Toyota

Env

iron

men

tal

basi

cs

Opportunity

Potential large market size and hence a strategic opportunity. Slow but stable growth

in the resent years, except for the last year’s economic crisis, keeps the automobile

industry relatively attractive. Toyota is dominating Japanese automotive market with

50% market share and working towards increasing it.

Env

iron

men

tal

Dyn

amic

s

Opportunity

The automobile industry is relatively stable and predictable. Reliable future forecasts

can be made and a strategy can be developed with a small degree of flexibility.

PEST

EL

Ana

lysi

s

Threats and some Opportunities

Significant threats are coming from current economic downturn and its

consequences.

Opportunities may come from new technological advances which can improve

automobile products and manufacturing processes.

Indu

stry

Life

Cyc

le Opportunity, if not taken may become threat if competitors will utilize it first

The automobile industry is in a ‘mature stage’ but still requires ongoing investment

to keep restoring growth. Opportunities are:

- process innovation

- product refinement and

- service enhancement

Indu

stry

Att

ract

iven

ess

Opportunity

According to Industry Attractiveness matrix, investment and growth is advised

through: building selectively on strengths, define implications of leadership

strategy, avoid vulnerability – fill weaknesses.


30

Table 4.7: Summary of Findings from Macro-Environmental Analyses (continued)

Factor Opportunity or Threat for Toyota? K

ey S

ucce

ss

Fact

ors

Opportunity, that can become threats if not addressed

Toyota needs to upgrade its key success factors regularly to sustain its

competitiveness.

Port

er’s

Fiv

e

Forc

es

Threat

Competition within automobile industry is very intense and thus requires sustainable

competitive advantage

Other threats from competitive forces Toyota manages to balance well

Com

petit

ors

Ana

lysi

s

Threat

Toyota’s major competitors are very close behind and trying to overtake each other.

Toyota needs to closely monitor its competitors and continuously make new

developments to sustain competitiveness.


31

4.11 Key Macro-Environmental Findings that have Impact on Project Objectives

External Environmental analyses uncover two major threats that Toyota must address.

Summary of key findings and its implications are in Table 4.8.

Table 4.8: Key Findings that have implications on this project

Source Key Findings Implications for Toyota

Table

4.7

Economic crisis reduce disposable

income

Affordability of Toyota cars affected,

customers looking for cheaper

alternatives

Table

4.7

Competition is very strong Toyota needs to continue investment in

product innovation and service

upgrading to sustain its

competitiveness


32

Chapter 5: Internal Analysis

5.1 Internal Resources and Capabilities

5.1.1 Vision, Mission and Guiding Principles

Vision, Mission and Guiding Principles shows what Toyota is trying to achieve and

what its employees believe in. Table 5.1 provides this information.

Table 5.1: Toyota’s Vision & Mission and Guiding Principles

Vision and Mission

Vision: The Right Way Forward

Mission: Make better cars and contribute to the society

• Strong commitment to put customer first, practicing genchi genbutsu, and providing

high-quality vehicles at an affordable price.

• Toyota’s goal shared by each and every Toyota employee who works, humbly and

seriously, believing in brighter automotive future.

• Valuing the satisfaction and happiness of each and every stakeholder.

Guiding Principles

1) Honor the language and spirit of the law of every nation and undertake open and fair

corporate activities to be a good corporate citizen of the world.

2) Respect the culture and customs of every nation and contribute to economic and

social development through corporate activities.

3) Dedicate ourselves to providing clean and safe products and to enhancing the

quality of life everywhere through all our activities.

4) Create and develop advanced technologies and provide outstanding products and

services that fulfill the needs of customers worldwide.

5) Foster corporate culture that enhances individual creativity and teamwork value,

while honoring mutual trust and respect between labor and management.

6) Pursue growth in harmony with the global community through innovative

management.

7) Work with business partners in research and creation to achieve stable, long-term

growth and mutual benefits, while keeping ourselves open to new partnerships.

Source: Adapted from Toyota Annual Report 2009, created by Olesya Glukhova (2009)

33

5.1.2 Financial Performance

Based on financial analysis and stock ratings, Toyota’s financial performance is strong.

Close cost monitoring bring Toyota to the top in the automobile industry. During the

economic crisis Toyota the first big carmakers announced profits and recovery in

November 2009.

5.1.3 Organizational Analysis

Toyota developed a system that nurtures employees and provides clear directions.

Employee support and a desire to constantly improve, create a strong culture which

brings competitive advantage in human resource and organizational strength.

Toyota Production System or as many call it now ‘Thinking People System’ can be

found in Figure 5.1. TPS has become a model that many organizations are adopting.

34

Figure 5.1: Toyota Production System The TPS House was developed by Taiichi Ohno and Eiji Toyoda to make it possible to

explain Toyota's evolving system to employees and suppliers. The aim of TPS is to eliminate

all muri, mura, muda (overburden, unevenness, waste) from the operations. It is a system that

uses the PDCA approach to involve everyone in solving problems and improving quality, cost,

delivery, safety, and morale.

TPS is the Operational Blueprint for a Lean Enterprise The organizations that have implemented Lean most successfully have adopted TPS as their

operational blueprint. They have studied and understood the system, renamed it to take

ownership of it as their own system, and adopted as pure a form of TPS as possible

• Make what the customer needs, when it is needed, and in the right amount

• Minimize inventories

• Separate machine work from human work and fully utilize both

• Build quality into the process and prevent errors from happening

Source: Adapted from Toyota Motor Corp by Olesya Glukhova (2009)

35

Figure 5.1: Toyota Production System (Continue)

The Toyota Production System

Long a symbol of Japan's leadership in logistics and supply chain best practices, the Toyota

Production System (TPS) stresses the importance of continuous improvement (kaizen); and of

matching supply to demand to reduce inventory, eliminate waste, and ultimately lean the supply

chain from supplier to consumer.

As Japan embarks on a new age of global trade, aspects of TPS inevitably surface in the growth

of this industry, given increasing importance to lean supply chain management and demand-

driven logistics.

An overview of the core tenets of Toyota's lean philosophy:

The Foundation

Heijunka: An approach to level production throughout the supply chain to match the planned

rate of end-product sales.

Kaizen: A Japanese term for continuing improvement involving both managers and workers. In

manufacturing, kaizen relates to finding and eliminating waste in machinery, labor, or

production methods.

The Left Pillar

Just In Time (JIT): An inventory system that controls material flow into assembly and

manufacturing plants by coordinating demand and supply to the point where desired materials

arrive just in time for use. JIT is also an inventory reduction strategy that feeds production lines

with products delivered just in time. Developed by the auto industry, it refers to shipping goods

in smaller, more frequent lots.

The Right Pillar

Jidoka: The concept of adding an element of human judgment to an automated equipment. In

doing this, the process becomes capable of discriminating against unacceptable quality, and the

automated process becomes more reliable.

Source: Adapted from Toyota Motor Corp by Olesya Glukhova (2009)

36

5.2 Summary of Strength and Weaknesses from Micro-Environmental Analyses

Summary on Toyota’s Internal Analysis shown in Table 5.2.

Findings from these analyses show Toyota’s strong position in automotive industry. Its

internal resources drive company to the competitive advantage within the industry.

Table 5.2: Internal analyses Competitive Advantage

Good distribution Products that are of good value for money

Human capital advantage

Products that are of good value for money

Strong Branding

Cope competencies

Superior efficiency Superior technology and quality

Employee loyalty Superior innovation

Customer loyalty

Pass VRIO YES YES YES YES YES YES

Valuable, Rare, Inimitable, Organizationally supported Capabilities Strong

financial support

Effective organizational structure Strong organizational culture Sophisticated distribution networks

Sophisticated equipment and technologies

Product and design quality and reliability Robotic technologies

Motivating, involving employees in organizational growth and improvement, employee retaining even during crisis

Innovative technologies Development of sophisticated equipment and products ITS

Reputation of reliable brand Perception of high quality products and value for money

Analyses Total Shares Outstanding – 1.6 bil Earnings/Share – (6.12) Volatility (beta) – 0.72 Debt/Equity Ratio – 1.26 Resilience and capacity for investment

Management: Toyota Production System in Figure 5.1 is explaining in details Toyota’s managements style Customer service: Toyota provides customer service support true trained staff which is available 24 hours Demand driven logistics Lean supply chain

Toyota has manufacturing plants in many countries all around the globe and equipped with new technologies Its total Fifed Assets Y 10,435,805 mil Unfortunately for Toyota, its fixed assets are not flexible and can’t be switched to other usage then car production

In 2009 Q2, Toyota Motor corp. registered 227 new patents and ranked 1st in on the worldwide scale by Dr. Jonathan Butler in his Portable Fuel Cell Survey 2009) (http://www.fuelcelltoday.com/media/pdf/surveys/2009-portable-free.pdf)

Toyota practicing employee empowerment to nurture creativity, continuous improvement, and innovation. On average one employee contributes 10 suggestions per year and 99% of these are implemented.

Toyota group companies in Japan supported by Toyota Central Research & Development Laboratories, Inc., with its expenditure of Y 904.0 bil in 2009 is a leading R&D in Japan

The highest Reputation Ranking by Reputation Institute’s annual Global Pulse 2008 Study Third in Automobile and Parts Sector Ethical Ranking (30.09.2009) by Covalence Toyota Brand Value 32,070mil by Swivel

Resources Financial Organizational Physical Technological Human Innovation Reputation Source: Created by Olesya Glukhova (2009) from various sources

38

5.3 Key Micro-Environmental Findings that have an Impact on the Project

Objectives

Internal analysis shows that Toyota is in a strong competitive position. Summary of key

findings and its implications are in Table 5.3.

Table 5.3 Key Findings from Macro-Environmental Analysis

Source Key Findings Toyota’s strengths/weakness

Table

5.2

Internal Strengths in :

Branding and customer loyalty

Product quality and innovation

Human capital

Sophisticated distribution and

servicing

Strength

Competitive advantage in key areas

keeps Toyota a world leader in

automobile industry

Table

5.2

Products not perceived to be highly

differentiated

Weakness

Require constant innovation to

differentiate its products


39

Chapter 6: Strategic Evaluation and Implications on Strategy Formulation and

Development

6.1: Evaluation of Current Position and Selection of Strategic Options

In order to formulate a new strategy, the current situation has to be assessed and

analysed. This part of the project summarises major findings from Macro and Micro

environmental analyses (Table 4.8 and Table 5.3) and with the help of strategic

management applications, draws possible options to sustain Toyota’s competitiveness.

SWOT analysis shows Toyota’s current position; presented in Table 6.1.

Table 6.1: SWOT Analysis

Opportunity Threats

New product development

Market penetration

New markets exploration

Economic cycle downturn

Increased pressure from competitors

Strengths Weaknesses

Market dominance

Economies of scale

Core strengths

Management skills

Innovation processes

Product quality

Products not highly differentiated

High fixed costs

Source: Adapted from Pearce et. al. (2007), created by Olesya Glukhova (2009)

As can be seen from SWOT analyses Toyota faces serious threats from the external

environment but has good internal strengths. Using this information to plot into

Pearce’s SWOT Analysis Matrix, Toyota would be in the Cell 2, which supports a

diversification strategy. Please see Table 6.2.

40

Table 6.2: SWOT Analysis Matrix

Numerous environmental opportunities

Cell3:

Supports a turnaround-oriented strategy

Cell 1:

Supports an aggressive strategy

Cell 4:

Supports a defensive strategy Cell 2: TOYOTA

Supports a diversification

strategy

Cri

tical

inte

rnal

wea

knes

ses

Major environmental threats

Subs

tant

ial i

nter

nal

stre

ngth

s

Source: Adapted from Pearce II et al., 2007 by Olesya Glukhova (2009)

To test the appropriateness of the diversification strategy and to draw more strategic

options for Toyota the Grand Strategy Matrix (by Christensen, et al., 1984) is used. As

Toyota has a strong competitive position and the market growth is slow in the

automobile industry, Toyota is placed in Quadrant IV. Table 6.3 confirming that

diversification or a joint venture can be a good strategy for Toyota.

Table 6.3: The Grand Strategy Matrix

Rapid Market Growth Quadrant II 1) Market Development 2) Market Penetration 3) Product development 4) Horizontal Integration 5) Divesture 6) Liquidation

Quadrant I 1) Market Development 2) Market Penetration 3) Product development 4) Forward Integration 5) Backward Integration 6) Horizontal Integration 7) Concentric Diversification

Quadrant III 1) Retrenchment 2) Concentric Diversification 3) Horizontal Diversification 4) Conglomerate Diversification 5) Divesture 6) Liquidation

Quadrant IV: TOYOTA 1) Concentric Diversification 2) Horizontal Diversification 3) Conglomerate Diversification 4) Joint Venture

Wea

k C

ompe

titiv

e Po

sitio

n

Slow Market Growth

Stro

ng C

ompe

titiv

e Po

sitio

n

Source: Adapted from Christensen et. al. (1984) by Olesya Glukhova (2009)

41

Quadrant IV provides four options for Toyota:

1) Concentric Diversification – Toyota has already diversified its product mix and

includes: sedans, SUV, MPV, minivans, trucks and heavy machinery. Toyota

also covering other customer segment, using Lexus line for high income group.

Concentric diversification has been taken care of by Toyota.

2) Conglomerate Diversification - Toyota has diversified its business portfolio

into financing, housing, communication and other business (full diagram

presented in chapter 1) Conglomerate diversification also has been taken as an

option by Toyota previously.

3) Horizontal Diversification

4) Joint Venture

Last two options offer fast increase in market share. Toyota can consider both options

for its further growth.

6.2 Evaluation of Strategic Options

The next step in strategy development is evaluation of strategic options. The two

suggested option – horizontal diversification and a joint venture need to be tested on

their suitability, feasibility, acceptability, consistency, business risk and attractiveness

to stakeholders. Table 6.4 analyses and provides conclusion that Joint Venture is a

better strategic option for Toyota.

Table 6.4 Evaluation of strategic options

Criteria for evaluation Strategic

option Suitability Feasibility Acceptability Consistency Business Risk Attractiveness to

Stakeholders

Diversification No Require allocation of

resources to the new

business which is risky

in current economic

situation.

Yes Toyota has resources

and innovative

technology to pursue

a new business.

No Diversification may

cause Toyota lose its

competitiveness in its

core automobile

business due to a lack

of focus.

No To sustain

competitiveness,

Toyota needs to

compete on its core

business rather than

try a new business.

No High risk, new

diversification

strategy may not

work and allocated

resources will be

wasted.

No A new direction of

business requires

capital and then takes

time to gain profits.

Joint Venture Yes Faster penetration into

new markets

Increase in resources

and power through

collaboration without

capital investment,

providing flexibility.

Yes As a market leader

Toyota is an

attractive partner for

a joint venture.

Yes Opportunity with

small amount of risk.

Yes Surrounding

circumstances are

favorable for moving

into new growing

markets. Toyota can

raise market share a

joint venture with an

established firm.

Yes Low risk, joint

venture is a

revocable alliance

and therefore

imposes low

business risk. If not

successful can be

separated back

without losses.

Yes Joint venture is a way

of expanding

business opportunity

and increase business

volume and profits.


43

6.3 Analysis of Current Strategy and Proposed Strategy

Based on the evaluation presented in Table 6.4, a Joint Venture is less costly and is

better option in current economic situation. To ensure support from the firm’s

stakeholders, a Joint Venture is the suggested new strategy for Toyota. Joint Venture

can be later converted into Merger or Acquisition if it is very successful. Using

McKinsey’s 7S framework, Table 6.5 highlights differences between current and new

strategy and actions that need to be taken for successful implementation.

Table 6.5: McKinsey’s 7S Framework Analysis

McKinsey’s 7S

Present Strategy

Proposed strategy

Fit/Misfit Actions to be taken

Resources needed

Strategy Cost leadership through Wholly owned business

Cost leadership through Joint Venture overseas

Misfit Require selection, evaluation and choice of strategic partner, follow by integration of two firms

Financial, People

System TPS Adopted TPS

Misfit Required technology installation and staff training

Financial, People, Technology

Structure Lean organization

Lean organization

Fit None None

Staff Highly skilled and knowledgeable

Skills and knowledge is lower

Misfit Required training

Financial, People

Style Teamwork Teamwork Fit None None Shared Values

Task Culture

Task Culture

Fit None None

Skills High and technology advanced

Not hi-tech Misfit Required training

Financial, People


44

6.4 Recommendation for Strategy

Findings in this report are suggesting a Joint Venture strategy for Toyota’s growth.

China’s fast growing market is an attractive opportunity. Toyota needs to choose an

established Chinese domestic partner to introduce Toyota’s products to the mass

market.

Japanese technology is more sophisticated than Chinese and therefore would require

training and upgrading employees’ skills and knowledge as well as introduction of

technologies and training on its usage. Chapter 7 provides detailed plan for

implementation of a Joint Venture.

45

Chapter 7: Strategic Implementation

7.1 Strategic Implementation

Situation analysis have been described in chapter four and five, and a summary of the

major findings can be found in chapter six, SWOT matrix.

The Mission of Toyota has been introduced in chapter five, including its guiding

principles.

Toyota is a public listed company and any strategic decision must be understood by its

shareholders and other stakeholders in order to secure their support

A concept developed by Kaplan and Norton (1996), ‘The Balanced Scorecard’ helps to

translate the strategic decision to all stakeholders of a firm. Please see Figure 7.1.

The main objective for each of the four group:

1. Financial perspective – to increase sales by 10% per year

2. Customers’ perspective – reliable and affordable cars

3. Internal business process perspective – enhance productivity by improving

processes in car manufacturing

4. Learning and growth perspective – provide training and career growth

opportunities to its employees.

In order to successfully implement the chosen strategy, ‘Joint Venture with Chinese

carmaker’, Toyota needs to develop a detailed plan which includes resource allocation

and budgeting. Timetable can be found in Table 7.1.

46

Table 7.1 Balanced Scorecard for Toyota’s Joint Venture

Source: Adapted from Kaplan and Norton (1996), created by Olesya Glukhova(2009)

KPI Measures and Targets

Volume growth

Sales up 10% in per year

Leadership in automobile sector (China)

Market share increase to 30%

Profitability ROI up 5% in two years

Value of business

Share price up by 3%

FINANCIAL

STRATEGIC DIRECTION Join Venture Overseas - Best carmaker - Best value provider


Favorite carmaker

Keep 1st place in rating

Best cars Repeated purchases

Best Value Most competitive in equation price and benefits

Best Service “0” complains

CUSTOMER


Supply chain efficiency

Cost cut by 5%

Sales and Marketing effectiveness

Return on advertisement 95%

Showrooms location

In major provinces

After service support

Remote assistance 24/7

INTERNAL BUSINESS PROCESS


Staff commitment

2% turnover rate

Adaptability Multi-skilled

Creativity and design

Staff suggestion encouragement

Cross-cultural understanding

Respect for others values and believes

LEARNING AND GROWTH

47

The Conclusion

This project has analyzed Toyota’s competitiveness in the automobile industry. The

firm’s strong position provides an opportunity for growth.

Macro environmental analysis for the automobile industry presents major threats such

as economic downturn and increasing competition. These threats can be overcome by

continuous product improvement.

Micro environmental analysis of Toyota confirmed the firm’s substantial strength.

Toyota is a world leading carmaker with a strong reputation for quality and reliability of

its cars.

Based on the Strategic Management Models the project suggests deploy Toyota’s

resources towards fast growing market of China. To minimize risks it is advised to seek

a Joint Venture with an established Chinese carmaker in order to instantly obtain access

to the market and increase its market share.

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