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Toyota Motor Corporationalso known as “Toyota”

Author: Mark Tottman

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Opening thought…

“No other man-made device since the shields and lances of the

ancient knights fulfils a man’s ego like an automobile”

Sir William

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Strategy Toolkit Contents

• Introduction• Thinking strategically• Strategic analysis of Toyota’s business• Strategic options for Toyota

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Introduction

• This presentation reviews the market for car manufacturing and takes you through the key corporate strategy issues facing Toyota Motor Corporation, a public limited company listed on the Tokyo, New York and London Stock Exchanges with its headquarters in Toyota City, Aichi, Japan

• It is important to remember that, in corporate strategy analysis, there are no right or wrong answers – just problems that need addressing and choices that have to be made

• The views and opinions expressed in this document are just our opinion. Hopefully you will find them helpful. However, don’t forget that you need to form your own views – and be ready to explain and justify them in your Unit 4a examination paper

• Print this presentation out and add your own notes to it as you work through the case study or download it onto your laptop and annotate it

• There are some suggested web links in the presentation for you to follow up as part of your detailed research programme

• Above all – remember that Unit 4a is about:– Thinking strategically– Thinking “big picture”– Thinking “synoptically” – i.e. recognising that strategy issues are not just about

marketing or finance or production – but about inter-related issues

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Toyota and this Toolkit

• Worked carefully through the case study – like you should too• Analysed the data, read between the lines – and presented the key features• Added some information to bring the case study up to date for 2011• Linked the analysis to the Edexcel specification for Unit 4a• Identified what we believe are the key strategy issues raised by the case study• Outlined the strategic options open to Toyota• Evaluated the strategic decisions that could be made

What We Have Done

What We Have Not Done• Question-spotted what we think the Unit 4a examiner might ask. Examiners have a habit of

asking tricky questions. In any event, you need to answer the questions actually set, not the ones you want to be asked

• Repeated all the details of the case study (there is no value added in doing this and you need to read it too!)

• Repeated all your textbook, class, VLE and revision notes on corporate strategy (refer back to these as necessary)

• Provided lots of notes on corporate strategy concepts – your textbook, VLE and class notes should cover those fine. You need to get thinking about vehicle manufacturing!

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How to Work Through This Presentation

Step 1

Read the Toyota case study carefully; study the words; look at all seven pieces of Evidence (A to G); form your initial views on the business – positive and negative.

Step 2 Read our advice on “Thinking Strategically”

Step 3Go back to the case study and re-read it. Try to identify what you think are the key strategic issues.

Step 4

Step 5

Read our sections on the Analysis of Toyota’s Business and our thoughts on the Strategic Options for Toyota

Summarise the key points from this presentation in your own revision notes (or scribble all over it) so that you are fully prepared for the Unit 4a paper

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Thinking Strategically

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Thinking strategically means imagining YOU are sitting at the Toyota boardroom table in Aichi, Japan,

with Akio Toyoda, the Chief Executive (since June 2009)

As you sit in the driver’s seat looking out through the windscreen across Toyota City, your role now is to navigate your way through the complex and intensely competitive world of global car manufacturing

and sales. Fasten your seat belt…

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Directors do not concern themselves with day-to-day operational details – neither should you

Are the same actions in the best interests of all the

stakeholders?

What external factors influence

our business?

How are we doing? Can we survive with our current

strategy?

What is our business mission? What are our goals

and objectives?

What strengths and weaknesses

do we have?

What resources do we need? How

should we finance them?

What are our competitors

doing?

How do we exploit the opportunities

available?

Akio Toyoda is concerned with questions like…

Think about these questions as you work through the case study

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Corporate Strategy involves taking decisions

• Decisions often need to be taken quickly

• Decisions involve risk – but a business can never move forward unless it takes risks

• Information is never perfect, complete or always up-to-date

• The Unit 4a evidence needs to be considered in detail and data must be interpreted with a critical eye

• Think about the decisions that Akio Toyoda needs to take. What information does he need?

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Be careful with your SWOT Analysis – don’t believe management hype!

Strengths…these are ONLY factors where a business has a real competitive advantage. Just being good at something is NOT a strength if your competitors are good at it too! Most businesses have only a few strengths. Some don’t have any.

Weaknesses…in reality, these are the things that really stop a business from succeeding. Most businesses have some fundamental weaknesses – but management often ignore them (and rarely admit them). Your job is to tell it as you see it.

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All businesses have problems – but they are rarely as bad as they look

Not every problem or issue described in the Toyota case study is really

important. Don’t get too bogged down by what look like numerous issues. Good management is about sorting

things out

Try to identify the really important issues, problems or challenges facing

Toyota. These are the strategic challenges that the company must

address

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Strategic Analysis of Toyota

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Market Overview: Global Vehicle Manufacturing

Global Market Size and Growth• The automotive industry crisis of 2008–2009 was a part of the global financial downturn. The crisis

affected European and Asian automobile manufacturers, but it was primarily felt in the North American industry

• Vehicle production recovered in 2010 with 77.6M cars being produced globally– Sales were up by nearly 26% on 2009 (which was a bad year for car sales)

• Emerging markets of Latin America, Central and Eastern Europe, Africa and the fast-growing Asia-Pacific/Middle Eastern region have the greatest future growth potential

– The Boston Consulting Group predicts that, by 2014, one-third of world demand will be in the four BRIC markets (Brazil, Russia, India and China).

– Other potentially powerful automotive markets are Iran and Indonesia– Asian automakers are gaining market share in the USA

Customers• There are considerable differences in the primary customer buying needs for cars based on income

levels, age, family, male/female, lifestyle etc– Therefore there is a very wide range of products on the market from small, low priced, economy cars through to

high priced, gas guzzling sports cars, from minivans to SUVs to smart cars and hybrid models

• Some commentators believe that by 2015 more more light vehicles will be sold in the aggregated “emerging” markets than in the combined "saturated" markets of the United States, Canada, Western Europe and Japan

– China and India are key drivers of growth in this sector, as low price, light vehicles (such as Tata Motors’ Nano) become attainable for an increasing percentage of these countries' huge consumer populations

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World’s Top Auto Producing Countries in 2010

Top Auto Producing Countries 2010 (Ms) 10 year growth1 China 18.3 783%2 Japan 9.6 -5%3 United States 7.8 -39%4 Germany 5.9 7%5 South Korea 4.3 37%6 Brazil 3.6 117%7 India 3.5 341%8 Spain 2.4 -21%9 Mexico 2.3 21%

10 France 2.2 -33%11 Canada 2.1 -30%12 Thailand 1.6 299%13 Iran 1.6 475%14 Russia 1.4 16%15 United Kingdom 1.4 -23%16 Turkey 1.1 154%17 Czech Republic 1.1 136%18 Poland 0.9 72%19 Italy 0.9 -51%20 Argentina 0.7 111%

China, India, Iran and Thailand have experienced phenomenal growth in car production during the last decade

By contrast, car production in the USA, Canada, France, Spain, Italy and the UK has declined in absolute terms over the same period

Saturated

Emerging

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Market Structure and Market Shares

Market Structure• There are many players in this market with no dominant market leader • Toyota is the leading global player with just under 11% market share• Besides Toyota, there are three other Japanese companies in the world’s top ten (Nissan, Honda and Suzuki) – and a total of

six in the world’s top 20• Twelve of the top 20 come from Japan, Germany or the USA• Chinese companies are an emerging threat to the mature car brands• Some companies use a predominantly single brand approach (e.g. Ford), whilst others operate with multiple brands (e.g. GM)

Other significant players in the market include:• FIAT (Italy)• Daimler (Germany)• Chana Automobile Company (China)• BMW (Germany)• Mazda (Japan)• Chrysler (USA)• Mitsubishi (Japan)• Beijing Automotive (China)• Taha Motors (India)• Dongfeng Motor Corporation (China)

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Major Global Competitors (2-4)

General Motors (USA) – GM was established in 1908 by William C. Durant. GM’s more famous brands worldwide are Cadillac and Chevrolet (also Vauxhall, Opel, Buick, Holden and GMC). It was the world’s number one car company for 77 consecutive years from 1931 to 2007, but, due to the global downturn of 2008, the car giant went bankrupt in June 2009. In July 2009, the company emerged from “Chapter 11 bankruptcy” proceedings. With 8.4 million vehicle sales in 2010 it is ranked number two to Toyota. www.gm.com

Volkswagen Group AG (Germany) – VW was founded in Germany in 1937 under the leadership of Adolf Hitler. Hitler wanted a “people’s car” which is the literal translation of Volkswagen in German. The Volkswagen Group constitutes brands like Audi, Bentley, Bugatti, Lamborghini, SEAT, Skoda , MAN and heavy goods vehicle manufacturer Scania. More recently, Porsche has united with the Volkswagen Group. Its best selling European brand is the VW Golf range. VW ‘s second-largest market is China, where its subsidiary, Volkswagen Group China (VGC), is by far the largest joint venture automaker, selling more than one million vehicles in 2008. With 7.1 million vehicle sales in 2010 it is ranked third in the world. www.volkswagon.com

Hyundai-Kia (South Korea) – Founded in 1967, The Hyundai Motor Company became the Hyundai Kia Automotive Group when Hyundai Motor Company purchased 51% of South Korea’s second-largest car company, Kia Motors, in 1998. Its main brands are Hyundai and Kia. The Indian subsidiary of Hyundai Kia Automotive Group, Hyundai Motors India, is India’s second largest car manufacturer. Having overtaken Ford with 5.7 million vehicle sales in 2010 it is ranked fourth in the world and is a fast growing global player.www.kiamotors.com http://worldwide.hyundai.com

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Major Global Competitors (5-8)

Ford Motor Company (USA) – Ford founded by Henry Ford in 1903 and, with the Model T, was the first manufacturer to produce a mass market car (“you can have any colour so long as it’s black!”). Its main car brands are Ford and Lincoln and it has a popular range of vans and other non passenger vehicles. Since 2006, Ford has fallen from second to fifth ranked by market share with sales in 2010 of 5.3 million. Besides the USA, Ford has main markets in Germany, Italy and the UK.www.ford.com

Nissan Motors (Japan) - founded in 1932 Nissan faced severe financial difficulties in 1999 and entered an alliance with the French manufacturer Renault. Together, Renault/Nissan would be the world’s fourth largest player. The Nissan VQ engines, of V6 configuration, have featured among the world’s 10 best engines for over a decade. With sales of 4.1 million in 2010, Nissan is ranked sixth in the world. www.nissan-global.com

Peugeot Citroën (France) – In 1974 Peugeot acquired a 38.2% share of Citroën. In 1976 they increased their stake of the then bankrupt company to 90%, thus creating the PSA Group. The main brands are Peugeot and Citroën. With sales of 3.6 million in 2010, PSA is ranked seventh in the world by market share.www.peugeot.com www.citroen.com

Honda Motor Company (Japan) – was founded by a self-taught engineer, Soichiro Honda, in 1948. The first production car was the S500 sports car and it was the first Japanese car manufacturer to release a dedicated luxury brand, Acura, in 1986. Today its main brands are Honda and Accura. Honda is also the world’s largest manufacturer of motorcycles and internal combustion engines, producing more than 14 million engines each year. With sales of 3.56 million in 2010, Honda is ranked number eight in the world by volume.www.honda.com

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This case study is about a leading global brand in a huge global industry

1. Coca Cola2. IBM3. Microsoft4. Google5. General Electric6. McDonalds7. Intel8. Nokia9. Disney10. Hewlett Packard

11. TOYOTA12. Mercedes Benz13. Gillette14. Cisco15. BMW16. Louis Vuitton17. Apple18. Marlboro19. Samsung20. Honda

Other auto brands in the world top 10050. Ford53. VW63. Audi65. Hyundai72. Porsche91. Ferrari

Ranking of world’s top 100 brands (source: Interbrand 2010)

• Toyota is ranked as the 11th most valuable brand in the world alongside some household names

• Ten of the most valuable brands in the world are in the automotive sector

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Top 10 Auto Brands: Product Positioning Map

High Volume Low Volume

Defined Segment / Niche

Undefined Segment / Mass

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The simple economics of Vehicle Manufacturing

• The problem that auto manufacturers face is that their business has extremely high fixed costs.   – Unlike variable costs that rise and fall with number of units produced, fixed

costs remain the same regardless of volume.  The fixed costs of vehicle manufacturing include all the research and development investment and the huge cost of the capital intensive factories which produce cars. 

– With such high fixed costs, the more vehicles the manufacturer can produce, the lower the cost per unit (economies of scale) and the better the margin.  Higher volumes equal higher profits.

• Therefore, in theory, bigger is better.

• However, in practice, the bigger the vehicle manufacturing operation:1. the more vulnerable it is to ‘shocks’ such as the sudden downturn in the

global economy in 2008-9 (because fixed costs of factories cannot be reduced easily in the short term) AND

2. the harder it becomes to control the quality of production

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Brand Positioning – Is Big always Beautiful?

The ten top 100 brands fall into two distinct groups:1. Relatively small volume global brands with < 1.3 million vehicle sales pa (BMW, Ferrari, Porsche,

Audi, Mercedes-Benz)– These are among the most well-defined and understood automotive brands.  They are specialty manufacturers,

all in the luxury segment, with relatively clearly defined target customers.  The strength of their brand definition makes up for what they lack in volume.

2. Big volume global brands with > 3.5 million vehicle sales pa (Toyota, VW, Hyundai/Kia, Ford and Honda)

– These mass market brands are not as tightly defined.  They market an exhaustive range of vehicles in multiple categories to virtually every customer segment imaginable.  These brands have a broad appeal through a broad range of vehicles and customers. What these brands lack in definition they make up for with volume.

• Both approaches can result in strong, valuable brands, but the vehicle manufacturing industry is continuously under pressure to increase volume, which sometimes (as in the case of Toyota) results in decisions that undermine the credibility of the brand.

• The desire to increase volume tests the brand’s elasticity.  – For example, Volkswagen, having purchased Porsche, wants to increase Porsche sales considerably by

expanding the product line to include smaller crossovers and more affordable sports cars.  Is there a point at which Porsche is no longer Porsche? 

– The high volume brands have a different set of issues.  Constant promotional incentives designed to drive up volume have taught consumers to look for a deal – in effect to treat the purchase as a price elastic, commodity type deal. A lack of brand differentiation and increasing recognition that today’s vehicles are usually high in quality will inevitably lead to lower margins and lower profits as every volume manufacturer competes on price.

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A Brief History of Toyota

• 1937 company was founded by Kiichiro Toyoda• 1957 entered USA market with the Crown• 1989 launched luxury brand Lexus• 1997 set up in Europe and launched world’s best selling hybrid car – Prius• 1999 set up in UK• 2002 enters Formula 1• 2005 comes 8th in Forbes 2000 list of the world’s leading companies (55th in

2011)• 2007-9 severely affected by the worldwide financial crises with a loss of US$4.4

billion. • 2009 declared its first financial loss since 1950 and had to ask for an emergency

loan of US$ 3 billion from Japan Bank, a state-backed lender. This is the first time the state-backed bank has been asked to lend to a Japanese car manufacturer

• 2009 (to present) Akio Toyoda, grandson of the founder, is Chief Executive• 2009-10 took over from General Motors as the world’s largest car manufacturer

by sales and production

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Toyota Today

• Toyota is the world’s largest vehicle manufacturer by volume, aiming to produce over 8 million vehicles in 2011

• It is one of the world’s leading and most valuable brands• Its main brands are Toyota, Lexus, Daihatsu and Hino (all Japanese) and Scion (USA)• Toyota has grown by acquisition with majority shareholding stakes in Daihatsu (51%) and

Hino Motors, and minority shareholdings of 16.7% in Fuji Heavy Industries (Subaru) , 5.9% in Isuzu Motors as well as Yamaha Motors and Mitsubishi Aircraft Corporation

• Toyota also runs a Financial Services business• Besides Japan, Toyota has factories and assembling plants in 26 other countries:

– North America - United States, Canada– South America - Mexico, Brazil, Venezuela, Colombia, Argentina– Europe - Poland, Czech Republic, France, Turkey, United Kingdom, Portugal, Russia– Asia - China, India, Sri Lanka, Pakistan, Indonesia, Malaysia, Thailand, Vietnam, Philippines– Africa - South Africa, Egypt– Australasia – Australia

• In total, Toyota has 540 consolidated subsidiaries and 226 affiliates and should be considered as a giant Multinational company (MNC)

www.toyota-global.com

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Toyota’s Regional Structure

• Toyota has a global framework in which– The global headquarters in Japan provides overall direction and support for initiatives

undertaken by the regional operations– The regional operations (the company's customer interface) decide on their own how best to

serve their customers

• Toyota views its global regions as the driving force for its management and for the delivery of the Toyota Global Vision, working through locally based operations to provide distinctive products and services tailored to needs and wants in each community and nation

• One of the challenges now and for the future is to manage the issues surrounding global production in respect of quality assurance. No matter where Toyota vehicles are made, they must have the same high level of quality.

• Toyota doesn't put a label on vehicles which says "Made in The USA" or "Made in Japan", but instead opts for one label for all: "Made by TOYOTA." This means that there is a need to spread Toyota's manufacturing philosophy — the "Toyota Way" — to all of their overseas bases.

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The Problem: Accelerators and Vehicle Recalls.What went wrong at Toyota?

• Evidence A gives a brief summary of the problems that Toyota faced• In January 2010 a series of problems emerged in the U.S.A. with “sticky” accelerator pedals

which meant that some Toyota cars experienced sudden and uncontrollable acceleration problems

• A series of accidents, including the fatality of a San Diego policeman, were linked to the Toyota accelerator problem

• As a result, Toyota halted sales and production of eight of its top-selling cars in the U.S.A. and recalled more than 12 million cars worldwide over an 18 month period to June 2011 in two separate recalls due to safety concerns

• Toyota faces the prospect of billions of dollars in charges, compensation and operating losses • The Toyota brand, once synonymous with top quality and reliability has taken a heavy hit,

especially in the U.S.A., where its market share dropped dramatically at the start of 2010 (see Evidence F)

• Trust in the brand and the reputation of the company has been undermined in the eyes of Toyota’s loyal customer base

• Toyota has also been accused of mismanaging the communications and PR activities associated with the safety recalls, thereby exacerbating the concerns of shareholders and customers and breaching their trust

The biggest series of product recalls in history, allegations of unintended acceleration, thousands of lawsuits, and a decline in the reputation of its brand that could take years to recover.

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Problems continue into 2011...

• The 2010 recall programme was the latest in a series of setbacks for Toyota, which started in 2008-9 with the sudden and dramatic downturn in the global economy which hit the American arm of business very hard

• Toyota’s problems have been compounded further by the recent Japanese earthquake and tsunami which has wreaked havoc on the country, the people of Japan and Toyota’s customers and supply chain activities – the effects of which are still being felt today

– Destruction caused by the twin disasters saw the carmaker suspend production, not only at its domestic plants ,but also at overseas factories

– As a result Toyota has warned that its profits for the current financial year would fall by a third – It is likely to produce fewer than 8 million vehicles in 2011

• In June 2011 Toyota recalled more than 110,000 hybrid vehicles over concerns about a problem with the power supply circuit affecting the Highlander hybrid and Lexus RX400h models globally

– The vehicles could stop suddenly because of an electrical problem leading to a blown fuse

• Some analysts think that Toyota is now in danger of losing its position as the world's biggest carmaker to GM who are currently improving their position in the U.S.A., doing very well in China and re-vamping their line-up in other key markets like India

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The Cause: From Quality to QuantityWhy did it go wrong for Toyota?

• Toyota's brand value reflects a long-standing corporate commitment to a simple and powerful business model built first on product quality and safety, and second on volume growth and sales quantities

• The quest for rapid expansion of sales volume led to cracks appearing in Toyota’s quality control systems

• As Toyota grew from a Japanese brand to the biggest carmaker in the world, it needed to boost its production in order to meet the increased demand for its cars

• That resulted in the company setting up factories in various parts of the world to ramp up production. Some of these factories may not have been able to maintain Toyota's very high Japanese standards – “The Toyota Way”– Toyota's commitment therefore shifted from product quality and safety to

business growth and sales• Toyota President Akio Toyoda has publicly acknowledged this focus shift

from quality to quantity and apologised for the company's misguided strategic focus

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Akio Toyoda’s Apology to the World

• “ I would like to point out that Toyota’s priority has traditionally been the following: first safety; second quality; and third, volume. These priorities became confused, and we were not able to stop, think, and make improvements as much as we were able to before, and our basic stance to listen to customers’ voices to make better products has weakened somewhat…

… We pursued growth over the speed at which we were able to develop our people and our organisation…

… I am deeply sorry for any accidents that Toyota drivers have experienced”

(Akio Toyoda February 2010)

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Toyota’s Global Vision

• Toyota has recently announced a new global vision and philosophy which will guide its strategy for the next decade

“Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people. Through our commitment to quality, constant innovation and respect for the planet, we aim to exceed expectations and be rewarded with a smile. We will meet challenging goals by engaging the talent and passion of people, who believe there is always a better way.”

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Global Vision: Where will Toyota focus its effort?Mobility, Enriching Lives, Safety, Quality, Constant Innovation...(1)

“Lead the way to the future of mobility"• Toyota will lead the industry in tackling technological advances that will spawn next-generation

mobility. It will explore possibilities in personal mobility, for example, and in the convergence of information technology for automobiles and "smart grids" for optimizing energy generation and consumption. Toyota will undertake such leading-edge R&D with an eye to adapting products and services to the needs and circumstances in each market

• Toyota will develop low-carbon technologies and technologies for maximizing safety through interaction with the transport infrastructure to lay a foundation for sustainable and amenable future mobility. The company will work in this and other ways to support new kinds of lifestyles, while propagating technologies for preserving environmental quality.

"Enriching lives around the world"• Toyota has been consistently true to its founding spirit of serving society through conscientious

manufacturing, and it will continue working in that spirit to enhance the quality of life wherever it has operations

• Toyota will continue contributing to economic vitality wherever it has operations by generating stable employment and by participating in mutually beneficial business relationships with dealers and suppliers. It will also continue to engage actively in initiatives for nurturing human resources and for enhancing the cultural life of its host communities

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Global Vision: Where will Toyota focus its effort?Mobility, Enriching Lives, Safety, Quality, Constant Innovation...(2)

"The safest and most responsible ways of moving people“• Safety is Toyota's highest priority and Toyota will continue to furnish world-class

safety• Toyota will also continue to contribute to environmental quality and to human

happiness by leading advances in technologies for minimizing environmental impact and by deploying those technologies in a growing line of vehicle models. The company will work through its products, sales and services to ensure a rewarding experience for customers

"Our commitment to quality, constant innovation"• Toyota is committed to providing highly reliable quality that will enable people to

feel good about driving and riding in its vehicles• Toyota will continue to reinvent itself and to develop technologies to address the

needs of today and of tomorrow. That includes working to provide vehicles that meet people's needs and that are affordable everywhere

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... Global Vision: Where will Toyota focus its effort?Planet, Exceed Expectations, Better Way, People

"Respect for the planet"• Toyota will continue working to minimize environmental impact in its manufacturing and other

operations, as well as in its products• Toyota's activities will include conserving energy and reducing output of carbon dioxide, as well as

conserving material resources through recycling;. It will also include establishing mindsets and production methods appropriate for coexistence with nature

"Exceed expectations and be rewarded with a smile“• Everyone at Toyota will continuously maintain a sense of gratitude to customers and will strive to earn

smiles with products and services that are stimulating and even inspiring

"There is always a better way“• All Toyota employees will share the recognition that there is always a better way and share a

commitment to continuous improvement, which are fundamental to “The Toyota Way”

"Meet challenging goals by engaging the talent and passion of people“• Toyota will nurture a corporate culture where teamwork and individual creativity thrive and where

people will approach their work with pride and with passion• The company will honour the spirit of diversity in recruiting, training and promoting capable individuals

around the world. Human resources development at Toyota will continue to promote the transmission of the company's monozukuri spirit of conscientious manufacturing and related skills and know-how from one generation to the next

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Global Vision: Simple Version!

Kind to the Earth• Toyota will use outstanding environmental technologies to

promote recycling on a global scaleComfort of Life• Toyota will create cars and a motorized society that allow

people to live safely, securely and comfortablyExcitement for the World• Toyota will spread the appeal of automobiles throughout the

world to increase the number of Toyota fansRespect for all People• Toyota will become a truly global corporation that is

respected by people around the world.

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Toyota expresses the Global Vision using a “Tree Metaphor”, focusing on roots, trunk and fruit

Toyota's vision evokes a virtuous circle. The company will contribute to its host communities by making excellent automobiles. Earning a welcome place for Toyota in its host communities will support sound returns. Toyota will reinvest those returns in creating ever-better vehicles for customers and will achieve sustainable growth.

Fruit = Making great cars and contributing to host communities: The fruit yielded by the tree symbolises Toyota's progress in creating ever-better vehicles and contributing to economic and social vitality in Toyota's host communities. That progress will earn a welcome place for Toyota in communities around the world

Trunk = Solid business: Business vitality is the trunk that supports Toyota's activities toward creating products that will win customer smiles. Through the trunk flows the nutrition for supple limbs, branches and leaves and for bounteous fruit.

Roots = Shared values: These are the values that people at Toyota have expressed over the years as the Toyoda Precepts, as the Toyota Guiding Principles (see Evidence C), and as The Toyota Way. They are the spirit of conscientious manufacturing

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Toyota’s Corporate Objectives to 2015 (1)

1. Product Strategy

• Product Appeal– In the spirit of creating great cars, greatly improve the design and feel of Toyota models and make way for the leading role of

localization in vehicle production– Offer genuinely exciting models that meet the needs of each market

• Models for Minimizing Environmental Impact– Expand Toyota's line of hybrid models, launching about 10 more by 2015, and continue to develop a full range of plug-in hybrid

vehicles, pure electric vehicles and fuel cell vehicles– Continue to pursue further gains in fuel economy in conventional gasoline engines

• Lexus Strategy– Position Lexus as a truly global premium brand– Assert characteristic Lexus strengths in product quality and in adding value, and in conscientious service to evoke the Lexus appeal,

emphasizing emotive ride, original design and advanced technology– Offer Lexus models in a growing range of emerging markets, and expand the Lexus sales networks in markets where the brand is

already a presence.

• Geographical Composition of Sales– Focus in the years to 2015 on models for minimizing environmental impact and on models optimized for needs in emerging markets– As for environmental-friendly vehicles, introduce such vehicles globally; in emerging markets strengthen local production, including

that of IMV (Innovative International Multipurpose Vehicle) and newly developed subcompact models– By increasing sales in emerging markets, achieve a balanced sales portfolio among Japan, the U.S.A, Europe and emerging markets– 2010 actual results = Industrialized nations: 60%, Emerging markets: 40%– 2015 targets = Industrialized nations: 50%, Emerging markets: 50%

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Toyota’s Corporate Objectives to 2015 (2-4)

2. Supply Strategy• Japan - Make the most of Toyota's existing production capacity and its world-leading manufacturing

expertise in manufacturing hybrid vehicles and other technologically advanced, high-value-added products• North America and Europe - Maximize productivity at existing plants and otherwise make the most of

existing resources• Emerging markets - Expand production capacity, analyzing demand prospects in each region carefully to

determine the geographical positioning, the timing and the scale of investment in expanded capacity

3. Diversification• Participate in developing "smart communities", in which vehicles will manifest new kinds of added value as

part of integral linkages between vehicles, homes and information networks• Collaborate with world-leading information technology companies in deploying "smart centers" globally

4. Profitability• Strengthen the three core functions of quality maximization, cost minimization and human resources

development in support of regional strategy, product strategy and business-sector strategy, and shape a solid and lean business foundation by reconciling high quality with low costs

• Reinforce Toyota's business foundation by working as soon as possible to achieve the goals of:– raising consolidated annual operating return on sales to 5% on a consistent basis and – restoring the Japan-based parent company of the Toyota Group to profitability assuming operating income of about 1

trillion yen at the company's present sales volume (at a yen/dollar exchange rate of 85 yen to the dollar) and a unit sales volume of 7.5 million vehicles

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Key Strategy Question:What are Toyota’s

Strengths, Weaknesses and Issues in its four main

business activities?

Marketing

Human Resources

Operations

Finance

Toyota’s ability to compete successfully with other car manufacturers and to deliver its vision and objectives will be affected by the

company’s strengths and weaknesses

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MARKETING: BrandingYears of careful brand development have been jeopardised by recent

events• The brand name was born in 1936 when it was changed from the

family name Toyoda meaning “fertile rice paddies” to Toyota because:

– the new name sounded better and– its eight-stroke count in the Japanese language was associated with

wealth and good fortune• The corporate logo, launched in 1989, is based on three ovals

that combine to form the letter T (for Toyota). – The two inner, interlocking ovals represent the beneficial relationship

and trust between the company and its customers– The bigger outer oval represents Toyota’s global presence all around

the world• The brand name has become synonymous with Japanese build

quality and product reliability which is trusted by Toyota’s loyal global customer base

BUT• Trust in the brand has been undermined by recent events with the

recall programme

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MARKETING: ProductToyota is a mass market producer whose products cater for all

segments of the market• Toyota’s product range includes cars, coupes, vans, trucks, hybrids, & crossovers/SUVs. • Passenger cars range from the subcompact Toyota Yaris, to the compact Corolla, to the mid-size

Camry and the full-size Avalon. Coupes include the MR2 – Several small cars, such as the xB and the tC are sold under the Scion brand in the U.S.A.

• Vans include the Previa, Estima and Sienna• Crossovers range from the compact Matrix and RAV4, to the mid-size Venza and Highlander.• SUVs range from the mid-size 4Runner to the full-size Land Cruiser• Pick up trucks include the Tundra and Hilux brands• Luxury-type vehicles – Models sold under the Lexus division range from the LS to the RX crossover

to the LX SUV and include various Crown models• Motorsport - Toyota has been involved in many global motorsports series including the World Rally

Championship and Le Mans 24 hour race. In 2002 Toyota entered Formula One as a constructor and engine supplier, withdrawing in 2009 due to the depressed global economic situation

• Toyota products are sold under about 70 different brands– Leading brands include Toyota, Lexus, Hino, Daihatsu and Scion– Toyota’s leading global make of car is the Corolla – Lexus often tops the global dealer charts for quality of Sales and Service

BUT• Toyota’s product range has been criticised for being rather staid and boring compared with some of it

nearest competitors, especially VW

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MARKETING: Price and PromotionToyota has clear price points and is restoring confidence in its brand

image through promotion• Toyota vehicles are typically mid-priced cars which have become

increasingly subject to promotional discounting as the manufacturer has sought to sell more cars

• For a number of years Toyota was famed for its advertising slogan:– “The car in front is a Toyota”, the promotional message being about technical

prowess and progress• Promotional messages are tailored to Toyota’s regional sales structure:

– “Toyota Moving Forward" for the USA business– "Oh what a feeling!" for Australia– "Today Tomorrow Toyota" for the European Union

BUT• Discounting policies can undermine the value of brand building• Some internet bloggers have, rather cruelly, attacked the Toyota brand in

the wake of its troubles with counter slogans such as:– “Toyota Moving Forward uncontrollably!”– “Today Toyota, Tomorrow Taxi!”

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MARKETING: PlaceUpdated data from 2011 for Evidence B shows a remarkable shift in

regional sales activity

• The Toyota product philosophy allows for regional demand differences to be met by locally oriented products (eg pick-ups in North America, Auris in Europe)

• Over the last two years, sales to Asian markets have grown by 39%, bucking the overall declining trend in all other regions.

– Daihatsu gives Toyota a growing share in fast growing SE Asian countries• Europe has experienced a particularly steep decline, although it is Toyota’s smallest region• Toyota has a large share of the US market where it is second behind GM• Toyota is the market leader in Australia

Toyota Sales Data (units by destination)

2009 2010 2011Two year growth

Japan 1,944,823 2,162,418 1,913,117 -1.6%

N America 2,212,254 2,097,374 2,031,249 -8.2%

Europe 1,061,954 858,390 795,534 -25.1%

Asia 904,892 979,651 1,255,016 38.7%

Other 1,443,433 1,139,329 1,313,123 -9.0%

7,569,365 7,239,172 7,310,050 -3.4%

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MARKETING: Toyota also has a range of other non-automotive products and

activitiesAerospace• Toyota is a minority shareholder in Mitsubishi Aircraft Corporation, a new venture which will produce the

Mitsubishi Regional Jet, scheduled for 2013Philanthropy• Toyota sponsors the Toyota Municipal Museum of Art in its home city of Aichi and is a supporter of the

Toyota Family Literacy Program helping low-income community members in educationHigher education• In 1981 Toyota established the Toyota Technological Institute and a second institute was established in

Chicago in 2003 Robotics• In 2004 Toyota showcased its trumpet-playing robot• Toyota has been developing multitask robots for the elderly care market – its brain machine interface is

designed for use with wheelchairs, allowing a person to control an electric wheelchair accurately, almost in real-time, with his mind.

• Robots are being developed for manufacturing and entertainment applications Finance• Toyota Financial Services Corporation provides financing to Toyota customersAgricultural biotechnology• Toyota invests in several start-up businesses and partnerships in the biotechnology sector including :

– P.T. Toyota Bio Indonesia– Australian Afforestation Pty. Ltd. – Sichuan Toyota Nitan Development in China

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OPERATIONS and PRODUCTION: Toyota’s management philosophy has emerged from “Lean

Manufacturing” and “Just in Time production”• Toyota’s managerial approach and business methods are known as The Toyota Way which

has four components:– Strategy = long-term thinking as a basis for management decisions– Process = a process for problem-solving– Respect for People = adding value to the organization by developing its people– Kaizen = recognizing that continuously solving root problems drives organizational learning

• It is made up of five values:– Kaizen (continuous improvement)– Genchi Genbutsu (going to the source to make correct decisions)– Respect– Teamwork– Challenge

• The term “lean production” originated in the 1980s to describe the synchronised manufacturing process at Toyota. “Lean”, sometimes called the “Toyota Production System”, or “Just-in-Time” production, is a philosophy focused on eliminating waste to create a just-in-time, synchronised workflow which increases productivity and improves value for customers. Lean operations aim to be flexible, with little inventory and flat management structures.

• Lean production has subsequently become a global management philosophy adopted by manufacturing companies and adapted to apply to service companies as well

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OPERATIONS and PRODUCTION:Toyota is a production success story...

• Toyota has production facilities in 28 countries around the world– As a general rule, the Japanese plants are flexible and produce multiple

models, while foreign (especially American) plants are devoted to a single/fewer model(s)

– Two UK factories in Burnaston Derbyshire (make Avensis and Corolla) and Deeside North Wales (make engines)

• Achievement of significant production economies of scale by virtue of being the largest producer of vehicles in the world

• Rated for production quality and reliability, especially with the Lexus and Scion brands

• The worldwide leader in and pioneer of Lean and J-i-T production and the reference model for the deployment of quality

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OPERATIONS and PRODUCTION:... But it has recently had setbacks and made mistakes (1)

• In January 2009 all of Toyota’s Japanese production plants closed for 11 days to reduce output and stocks of unsold vehicles driven by the impact of the global recession

• The J-i-T practices were vulnerable to the recent earthquake and tsunami because Toyota’s supply chain broke down and it had insufficient stock holding of car parts to fulfil its orders– Consequently it is re-thinking its supply chain strategy and the use of

alternative suppliers which might give it more agility to respond to disruption – Production in Japan is down by 63% in 2011 (vs 2010) because of the effects

of the tsunami – its lowest domestic production since 1976!

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OPERATIONS and PRODUCTION:... But it has recently had setbacks and made mistakes (2)

• Some factories outside Japan have not met the requirements for quality as set out in the Toyota Way – hence the problems with accelerators, brakes and hybrid power supply circuits. This is a failure of Genchi Genbutsu, a core value of Toyota– Supply chains are only as strong as the weakest link. Auto companies make

hardly any of their parts.  They assemble cars from parts made by others.  – The offending accelerator pedal assembly was made for Toyota by a company

called CTS of Elkhardt, Indiana, U.S.A.– Supply chain monitoring is a critical factor for manufacturers that rely on third-party

suppliers (as it is for a broad variety of global industries, not just automobiles). Smart companies should know their suppliers and their respective strengths and weaknesses

Toyota’s brand architecture, with its almost exclusive focus on a single corporate brand, which was previously one of its greatest advantages, has since become its biggest strategic problem. By using shared parts and technologies across multiple models, a technical hitch with one car also means problems with others

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OPERATIONS and PRODUCTION:Toyota Vehicle Production by Region

(Year to March 2011)

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HUMAN RESOURCES: Toyota is a large global employer with respect for its teams, but

economic realities have led to job and pay cuts• Toyota has 318,000 employees worldwide• Its core values, encapsulated in The Toyota Way state the importance of

– Respect for people– Teamwork

• From a CSR perspective Toyota is concerned with the socio-economic aspects of its operations, such as the health and safety of employees, as well as that of the communities in which the company operates

BUT• The last three years have been a tough time for employees in the car industry

– For example, since 2007, 250,000 jobs have been cut in the U.S.A. by GM, Ford and Chrysler combined

• Toyota has laid off many of its temporary staff and other staff have been asked to take pay cuts which has a negative impact on morale and motivation, for example:

– 750 job cuts in UK in 2010– 240 job cuts in Australia 2011 with an additional 3,300 staff on reduced wages as the

Melbourne factory ran on reduced capacity utilisation– All production was suspended in N America for 5 days in 2011

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FINANCE: Toyota is a huge financial institution, going through a

difficult time• Toyota is a plc listed on the London, New York and Tokyo stock

exchanges• As a public limited company, it can raise significant sums of money

through the sale of shares and/or through borrowing in order to expand– e.g. Acquisition of Daihatsu

• The book value of the Fixed and Current Assets on the balance sheet is 377 billion US$ (based on July 2011 exchange rates)

• Profits in 2009 were impacted by the economic downturn, the year in which it incurred its first financial loss since 1950– Toyota's financial unit had to ask for an emergency loan from a state-

backed lender (Japan Bank) on March 16, 2009, with reports putting the figure at more than US$3 billion. It is the first time the state-backed bank has been asked to lend to a Japanese car manufacturer

• Profits in 2010 and 2011 were impacted by the tsunami and earthquake in Japan as well as by the safety recall programme

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FINANCE: An analysis of the Balance Sheet from Evidence D (with updated figures

for 2011) shows a healthy financial position

• Current Ratio is a little low, but has remained steady for three years

• Quick Ratio is healthy and has improved slightly since 2009

• Gearing Ratio is unchanged since 2009. Toyota has the option to:

– increase its gearing a little if it wanted to borrow in order to expand further

– or it could use some of its profits to pay down some of its long term borrowings

BALANCE SHEET (Yen M)Mar-09 Mar-10 Mar-11

Current Assets 11,298,929 13,073,604 11,829,755Cash and Debtors 9,839,535 11,651,231 10,525,513Stock 1,459,394 1,422,373 1,304,242

Current Liabilities 10,589,293 10,686,214 10,790,990

Fixed Assets 17,763,108 17,275,683 17,988,411Long-term Liabilities 7,872,007 8,732,630 8,107,152Capital Employed 18,472,744 19,663,073 19,027,176

Current Ratio 1.1 1.2 1.1Quick Ratio (Acid Test) 0.9 1.1 1.0Gearing Ratio 42.6% 44.4% 42.6%

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FINANCE: An analysis of the Income Statement shows that Toyota is improving, but not

achieving its objective for NPM, and it has a poor ROCE

• Sales revenues are down by 7.5% over two years because of price competition and discounting

• Gross Profit Margin has increased, indicating improvements in managing down the Cost of Goods Sold

• Net Profit Margin has risen to 2.5%, but is still only half of the target set by Toyota in its corporate objectives, although profitability has been restored

• Return on Capital Employed is increasing, but for the last three years it has yielded less than Toyota could have earned if they had employed their capital (relatively risk free) earning interest in a bank or bond account

INCOME STATEMENT (Yen M) Mar-09 Mar-10 Mar-11 Two year changeSales Revenue 20,529,570 18,950,973 18,993,688 -7.5%Cost of Goods Sold 18,455,800 16,683,797 16,615,326 -10.0%Gross Profit 2,073,770 2,267,176 2,378,362 Overheads/Expenses 2,534,781 2,119,660 1,910,083 -24.6%Operating Profit/Loss (Net Profit) (461,011) 147,516 468,279 Gross Profit Margin 10.1% 12.0% 12.5% Net Profit Margin -2.2% 0.8% 2.5% Return on Capital Employed (ROCE) -2.5% 0.8% 2.5%

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Summary of Toyota’s Strengths and Weaknesses

Strengths Weaknesses

Marketing 70 brands & a diversified product portfolio (subsidiaries: Lexus, Diahatsu, Hino)Global marketing presence & high market penetration in key markets - Japan, SE Asia, USA

Loss of trust in the reputation of the brandUnclear target segments

Operations Lean Production and J-i-T management techniques – The Toyota WayProduction economies of scaleReputation built over several years for product quality and reliability

J-i-T vulnerability to “external shocks”Variable quality of production in factories outside Japan

Human Resources

Respect for staff and teamwork both at the heart of Toyota’s philosophy

Many job losses and pay cuts in the last three years

Finance Management of Overheads and Cost of SalesRising profit margins

NPM well below targetLow ROCE

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There are several external influences outside Toyota’s

control which create opportunities and threats

(PEST)

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Political (and Legal)

• Vehicles have enriched people's lives, added convenience, and have become an essential part of modern life and today's economic activities. However, traffic accidents, congestion and environmental problems caused by exhaust emissions still exist

• Environmental regulations on carbon emissions will intensify• Stringent safety laws will remain in force• Alternative forms of transport (e.g. cycling, public transport) will be encouraged by

governments all around the world

Opportunities• Development of low, or no, emission vehicles (hybrids, eco-friendly)• Ability to sell more easily to global markets with fewer constraints

Threats• Requirement to invest in state of the art, clean, pollution free manufacturing facilities• Increasingly litigious society will pursue safety claims ferociously

Toyota’s Vision for Society in 2020-2030: Towards a Mature Society• Nationalism will steadily decline and respect for all peoples will expand throughout the

world• People of a variety of nationalities and ethnicities will be able to engage in lively

exchanges of ideas in global companies

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Economic

• Prices of oil, petrol and diesel will continue to rise on the global markets because of the dwindling supply of these commodities as the century progresses

• Emerging markets will grow significantly faster than mature Western markets (China, India, Brazil, Russia especially)

• Exchange rates will affect global demand and global costs (strong Yen hindering Japanese exports)

Opportunities• Developing new ways of powering vehicles – growing demand for hybrid , electric vehicles• Locating production facilities in parts of the world closest to growing demand with the lowest costs

Threats• Squeeze on disposable incomes, especially in USA and Europe will affect demand• New car retail sector is prone to fluctuations in the economy because a new car is not a necessity

– During recession people keep their cars longer (delaying the purchase of a new car)• During recession, customers tend to switch to ‘Value’ brands rather than ‘Premium’ brands

– Discounting by big three vehicle manufacturers• Reluctance of banks to lend in the current economic climate making it hard to raise money for:

– Survival?– Expansion programmes?

Toyota’s Vision for Society in 2020-2030: Towards a Recycle-oriented society• Transition from the era of large-scale production and large volume consumption toward a recycle-oriented society on a global scale that promotes Reduce (conservation of resources), Recycle and Reuse

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Social (and Environmantal)

• People are becoming more concerned about pollution• Growing demand for smaller, eco friendly vehicles• The environmental and the ethically friendly image of companies is welcomed by consumers

Opportunities• Development of environmentally friendly technologies

– Toyota has been a leader in this area, most notably with the RAVEV (1997 to 2003) and the Prius (1997 to present which sold 2 million units in 2010), second generations of which are both planned for 2012

– Since 2006 Toyota's new Japanese-market vehicle models with automatic transmissions have been equipped with an Eco Drive Indicator. This system takes into consideration the rate of acceleration, engine and transmission efficiency, and speed. When the vehicle is operated in a fuel-efficient manner, the Eco Drive Indicator on the instrument panel lights up and may result in improvements in fuel efficiency of up to 4%

– Toyota Hybrids are already synonymous with fun and fuel-efficiency

Threats• Some countries will move much more slowly than others in terms of uptake of environmentally friendly

vehicles

Toyota’s Vision for Society in 2020-2030: Towards the Development of Motorisation on a Global Scale• People all around the world will be able to enjoy the high degree of mobility afforded by automobiles

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Technological

• Developments in technology are already moving fast and are set to speed up

Opportunities• ITS (Intelligent Transport Systems): advanced transport systems that are constructed to integrate people, vehicles and

the traffic environment, using state-of-the-art information and communication technologies to build a safe, comfortable and smooth transport infrastructure

• Plug-in hybrids using lithium-ion batteries with home re-charging• Fuel Cell vehicles using hydrogen for energy?• All electric vehicles?• Eight speed automatic engine transmission• Integrated Safety Management Concepts

– Automatic parking– Active Safety technology to avoid dangerous situations and prevent accidents– Pre-crash Safety Prediction technology to predict a frontal collision before it happens and help reduce damage– Passive Safety technology to decrease the damage from collisions– Rescue Emergency dispatch service to notify of traffic accidents/emergencies automatically

Threats• Competitors developing and patenting better or more marketable technology solutions

Toyota’s Vision for Society in 2020-2030: Towards the age of Information and Telecommunications Systems and Ubiquitous Networks• Information and telecommunications technologies are advancing and the use of IT in automobiles is increasing• Mobile information services are improving rapidly• Infrastructure-respondent preventive safety technology is developing

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SWOT Analysis – A Summary

Strengths Weaknesses

ThreatsOpportunities

• Brand with global presence• The Toyota Way

• Loss of trust in brand• Low ROCE and Net Profit Margin

• Hybrid, eco-friendly vehicles• Technologies to make driving

safer and fun• Emerging markets

• Difficult to access credit• Gloomy economic outlook

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Strategic Analysis:Michael Porter’s Five Forces Model

Rivalry of Industry Competitors (High)

• Some product and branding differences, but many products are similar

• Slow industry growth so it is all about gaining market share

• A race for Developing hybrid and eco friendly models and other new technologies

• Intense price competition and discounting

• Medium/High exit barriers

Threats of Substitution (Low)• A mass public transportation system?• Affordable private jets?

Threat of New Entrants (Medium/Low)

• Due to high up front investment costs and the presence of several strong brands, it is hard to enter this industry

• However, some recent new entrants have entered the market in Emerging countries (e.g. Tata Motors)

• Customer Power (Medium/ High)

• Easy to switch brands• Several cars offered in each

category• Customers expect to negotiate

on price with the car dealer

Supplier Power (Low/Medium)• Numerous, diluted suppliers• But quite hard for Manufacturers

to switch suppliers• Suppliers survive only if the

manufacturer survives, so they have to work together

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Key Strategy Issue:Is Toyota’s bigger problem the way they managed the PR and

communications with stakeholders rather than the product safety issue itself?

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Toyota did not manage the Public Relations exercise very well...

• In a crisis, the way the brand reacts is important• The company was caught flat-footed by the public relations disaster of

its own making• As its global recall crisis worsened, CEO, Akio Toyoda, delayed and

waited weeks before giving his first full press conference• Uncertainty is not an asset, especially when lives could be at stake

through the sale of a ‘dangerous’ or ‘unsafe’ product• As a result, stakeholders such as customers and investors were left

feeling unloved and angry• There was a loss of trust between the brand and its stakeholders and

Toyota’s Vision Statements were made to look hypocritical, especially in America

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Key Strategy Issue:Is Toyota’s culture too insular and parochial for the modern,

global market-place?(Evidence C)

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The Japanese approach is very different from many more ‘Westernised’ businesses

• The traditional Japanese management style, practiced by Toyota and most Japanese companies, focuses on team spirit and management by consensus much more than a boss who leads from the front, inspires with a big vision and who bangs heads together

• Business culture in Japan is highly deferential. Top managers often rise through the ranks while avoiding making waves through radical reforms or open disagreements with colleagues, and take the top job once they have proven themselves as a safe pair of hands

– Akio Toyoda was groomed to take the job his father and grandfather once held, having spent his apprentice years in several company divisions and various overseas postings

• The culture tends to be rather insular, inward-looking and production oriented rather than customer focused and stakeholder focused

– Toyota’s all-Japanese executive board is headquartered not in Tokyo, but the relative seclusion of Aichi, a small town near Nagoya

– The first foreigner accepted onto Toyota's board of directors, in 2007, was American Jim Press, who had spent 37 years with the company. He resigned from the post after just five months and went to rival carmaker Chrysler

– Although he earned an MBA from Babson College in Massachusetts, Akio Toyoda’s spoken English is limited

• In terms of Charles Handy’s work on culture, Toyota most closely resembles a Role Culture

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There is an argument to suggest that Toyota’s culture needs to become more ‘global’,

but they have made some progress• During the recall crisis, Toyota acted slowly and did not sense immediately what

was going on in foreign markets

• Toyota vice presidents advised Akio Toyoda to stay away from the U.S. Lawmakers, despite the fact that he wanted to appear (an example of insular, production oriented advice)

BUT

• Toyoda’s dignified and humiliating public apology, in which he committed himself and his company to promoting safety, has been seen as a step in the right direction towards a more open and customer oriented culture, especially given that it was delivered in the full glare of the media

• As Toyota globalises its business (e.g. Operations in 28 countries), its executives and workforce become more used to working in other cultures

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Key Strategy Issue:To what extent does Toyota

achieve Corporate Social Responsibility?

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The safety issue was a clear breach of CSR, and cars use fossil fuels which degrade the environment,

but Toyota also does do much good work in this areaCare for the Environment• As the world’s largest car manufacturer, Toyota is committed to tackling environmental and social

issues. The company’s approach is both long-term and holistic. The total life cycle of the product, from design and use of materials to end-of-life recycling is important to them.

The Toyota Earth Charter• Another significant step in Toyota’s commitment to sustainable development is the Toyota Earth

Charter for implementing consolidated environmental management. The Charter, adopted in 1992 and subsequently revised in 2000, embodies a comprehensive approach to global environmental issues, outlining Toyota’s basic policy and action guidelines towards effective environmental management and improvements. The Toyota Earth Charter underlines a commitment to environmental excellence, not only through broad principles, but also in concrete examples of what can be done through action guidelines in terms of harmony between humans and the earth

“Zeronize and Maximize”• Toyota’s vision for sustainable development that promotes a truly sustainable mobility solution can be

summed up by Zeronize and Maximize:– Zeronize refers to Toyota’s aim of reducing the harmful effects of automobiles on people and the environment to

zero:• Zero emissions• Zero accidents/serious injuries• Zero congestion

– Maximize represents Toyota’s goals of providing ever greater comfort, fun and excitement in its vehicles

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Key Strategy Issue:Is Toyota’s product range too

boring?

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Toyota has a reputation for producing reliable carsfor the mass market,

but that’s not the whole story...• Some critics have said that Toyotas are boring

– It produces dull motor cars such as the Corolla which is a leading mass market brand, but similar to many mid-range competitors such as Honda, Nissan and Mazda

– Reliability and build quality are the main selling points– Prius is uninspiring

• Even Akio Toyoda has said that his cars need to be more exciting and he has heaped praise on a competitor, the VW Scirocco

• However, others argue that the brand is a lot more interesting than this– Hybrid models, such as the Prius, are innovative and ground breaking with highly

commendable worldwide sales and a unique contribution to improving the environment

– Lexus is an upmarket, leading brand which wins awards for sales and service– Toyota has been involved in Formula 1

• Toyota’s corporate objectives and brand values allude to the need for cars to be ‘fun’

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Key Strategy Issue:Can Toyota survive the effect of

falling market share in the U.S.A.?

(Evidence F)

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The problems affecting GM, Ford and Chrylsler in the U.S.A. (and Saab in Sweden) show that car manufacturing is going through tough times

• Toyota’s desire to supplant General Motors as the world’s number-one car-maker pushed it to the outer limits of quality control which compromised safety in several US manufactured Toyota cars

• Maybe gaining market share wasn’t worth the trade-off• Toyota has accepted responsibility for its errors and, although sales are

down in the U.S.A., it is still trading as number two behind GM in GM’s ‘home’ market

• By taking a long term view and re-investing in its brand, Toyota is re-building its reputation

• Toyota is positioned for recovery about as well as it could be, owing in large measure to the reputation for quality products and corporate responsibility it has developed over the last two decades

• Time will tell whether it succeeds...

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Key Strategy Issue:How significant to Toyota are the

changes in the UK market?(Evidence G)

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Evidence G shows that Toyota made slow progress in the UK last year

• Despite average sales growth of 22% across the market, Toyota grew by only 1% and its Lexus brand declined by 4%

• Hyundai-Kia Group, which has climbed the world rankings rapidly, led the way, possibly because of its relatively low priced vehicles

• Although Toyota will not be pleased with these figures, the Group is a relatively small player in the UK with only 4.8% market share (against its average worldwide share of nearly 11%)

• The UK represents only 1-2% of the global market for new cars

• Toyota might be best to focus its efforts in growing markets in Asia

New Car Registrations May 2010 in the UK No in '000s Share Yr v Yr % changeHyundai 34.611 3.8% 138%Kia 30.095 3.3% 113%Renault 43.883 4.8% 108%Land Rover 18.958 2.1% 68%Skoda 18.469 2.0% 61%Nissan 35.147 3.8% 46%Fiat 24.546 2.7% 43%SEAT 14.992 1.6% 36%Mini 17.341 1.9% 36%Peugeot 49.629 5.4% 27%Volkswagen 79.649 8.7% 27%Audi 47.559 5.2% 21%Citroen 31.048 3.4% 20%BMW 40.626 4.4% 19%Mazda 20.842 2.3% 18%Mercedes Benz 30.591 3.3% 13%Other 55.33 6.1% 11%Ford 134.634 14.7% 4%Vauxhall 103.261 11.3% 2%Toyota 40.795 4.5% 1%Suzuki 9.82 1.1% -2%Lexus 2.98 0.3% -4%Honda 28.629 3.1% -9%TOTAL 913.435 100.0% 22%

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Health warning for Toyota

There is a limited amount of evidence in the case study so it is difficult to develop a water-tight

corporate strategy. But is it possible to evaluate

some of the options

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Strategic Options for Toyota

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The work of Michael Porter: Toyota’s strategy needs to reflect its competitive advantage

• Resource advantage – firm specific assets that the competition cannot easily acquire such as patents, trade marks, proprietary knowledge, installed customer base, reputation, brand identity

• Capability advantage – skills and competencies, innovation, creativity and quality of processes

• Cost advantage – productivity of labour/assets and buying power for raw materials

• Differentiation advantage – ability to add value by offering (unique) product benefits

Toyota has no unique advantage in this area

Toyota has a competitive advantage from The Toyota Way, and through its innovation in hybrids and new technologies

Toyota has some advantage because it is the largest player in the market by production volume

Toyota has no discernible advantage in this area

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Porter identified three generic strategies against which Toyota can be evaluated

Generic Strategy

What does it mean? What is required?

Cost Leadership

Unit costs are lower than competitors because of economies of scale, good production processes and efficient resource allocation

Up front investment in gaining market share followed by running a very tight ship

Differentiation Winning profitable segments of the market. Unit costs may be higher, market share is less important, but customers are prepared to pay a premium for quality and individualised products

Finding perceived product characteristics and uniqueness that add value

Focus Avoidance of confrontation with competitors (cost leaders and differentiators) by developing niche positions with products for otherwise unsatisfied customers

Finding markets that large companies cannot easily replicate (e.g. super fast delivery, personal service, hard-to-imitate products)

No

Yes

Maybe

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Low Cost Differentiated (product uniqueness)

Competitive Advantage

Competitive Scope

Broad(market-wide)

Narrow(market segment)

Cost leadership strategy

Focus strategy (low cost)

Differentiation strategy

Focus strategy (differentiation)

Applying Porter’s Strategy Matrix to Toyota indicates that a Cost Leadership strategy is appropriate

Toyota

Lexus

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Recent Strategy Initiatives at Toyota

• Good leaders take the time to reflect on their mistakes and respond with a strategy that not only protects their position, but also carves out new spaces.

• In May 2010, Toyota announced a partnership with Tesla Motors. Toyota invested US $50 million into Tesla, as well as providing engineering and production systems for the development of electric vehicles

• This partnership is not without its challenges– Culture: Toyota operates with a geographically dispersed, top-down,

command and control culture while the US Silicon-Valley based, Tesla, has a more flexible, innovative approach. Both companies need to find middle ground to make the alliance work.

– Differentiation: Every major carmaker is focused on coming up with a cleaner technology solution and many are even beginning to bring their early ideas to market. The stakes are high and Toyota will need to work hard to differentiate its brand.

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Assessing the Strategic Options available to Toyota

Generic strategies: businesses have three strategic options:1. Retrenchment: this is not applicable to Toyota, (although Toyota has arguably

been through a period of retrenchment in 2009-10)2. Stability: this probably applies to Toyota, who need a period of calm after the

storm3. Expansion: possible, but it would require finance and comes with certain risks

Strategic tools• There are several tools available to identify strategic options for growth• These centre on the approach the business might take to its products and

markets and whether any growth should be “organic” or by “acquisition”

Evaluation• The evaluation of strategic options should take into account Toyota’s

– Aims and objectives– Physical, human and financial resources– Management structure and skills– Culture– Key stakeholders and shareholders, their views and interests

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The Ansoff Matrix can be used to help make decisions about products and markets

• Decisions about what products to sell, and in which markets, provide an important guide to the direction of growth

• Ansoff drew up a growth vector matrix that described how a combination of business activities in existing and new markets, together with existing and new products, can lead to growth

• The four strategies arising from the matrix are:– Market penetration – increasing market share– Market development – where a business seeks new markets (either new

geographies or new customer segments) for its products and abilities– Product development – the launch of new products to existing markets– Diversification – when a business decides to offer new products in new

markets

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Ansoff Matrix:Products and Markets

Existing Products New Products

Exis

ting

Mar

kets

New

Mar

kets

MarketPenetration

ProductDevelopment

MarketDevelopment Diversification

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There are two choices to be made about how a business should invest in a growth strategy

Organic Growth

Growth by using the existing, internal resources of the business

Advantages

Disadvantages

Makes best use of existing resources Consistent with the culture and management style of the business May lead to economies of scale Easier to control = less risk

Often slow particularly if existing markets are low growth Doesn’t create barriers to entry Spare resources (e.g. cash) may be wasted Can create a cautious approach

Acquisitions

Growth by buying other businesses or assets

Advantages

Disadvantages

Can overcome barriers to entry Helps spread the risk (not all eggs in the same basket) Provides quick access to key business resources (e.g. brands) Easier to control = less risk

Cost – price usually too high Different cultures – may clash Customers may be upset High failure rate (70% of acquisitions fail to achieve their objective)

e.g. Expand car production in an existing location e.g. buy an existing car manufacturer

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Ansoff’s Matrix can be applied to Toyota, giving the business a number of different strategic options

Existing Products New Products

Exis

ting

Mar

kets

New

Mar

kets

MarketPenetration

ProductDevelopment

MarketDevelopment Diversification

Expand organically and make cars more fun

Expand overseas (Asia)

Develop more hybrid and eco friendly cars

Develop “smart communities”

Expand by acquisition of a competitor

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Which ever option is selected, decisions need to be taken about whether or not the growth markets are related

OptionHorizontal Integration

(Related Markets)

Description

Grow activities that are competitive with and complementary to existing activities

Vertical Integration

(Related Markets)

Business becomes its own supplier (backward integration) or distributor (forward integration)

Advantages: Secure supply; take more profit from the value chain; create barriers to entry

Disadvantages: More exposed to the same market; does not necessarily offer economies of scale

Diversification

(Unrelated Markets)

Spread risk by operating in markets that are not directly competitive or complimentary

Advantages: May obtain synergies (e.g. using same distribution channel)

Disadvantages: Limited experience in separate markets increases risk of things going wrong; cultural differences

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Strategic Option:Toyota could expand organically by building more factories and

updating their cars

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A Market Penetration Strategy:Organic Growth?

• This option is about increasing production capacity and refreshing the look and feel of Toyota cars

Toyota would focus on:• Extending current factories and/or building more production capability• Refreshing the brand by

– Redesigning interiors completely (e.g. Corolla)– Facelift for exteriors– Some new components (e.g. Give Corolla 5 or 6 speed)– Maximizing positive factors such as fun, excitement, and comfort

• Investing in brand development rather than throwing more money at discounts and incentives because a stronger brand identity increases leverage, margins, and ultimately sales.

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Strategic Option:

Toyota could expand by the acquisition of a vehicle

manufacturing competitor

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A Market Penetration Strategy:Growth by Acquisition?

• This option is about generating immediate and significant growth in market share by acquiring an existing vehicle manufacturer (e.g. Proton in Malaysia)

Toyota would need to• Conduct appropriate market research to identify a suitable

target company and market• Raise the necessary funding in conjunction with

shareholders and/or the banks• Prepare a plan for corporate integration and the generation

of synergies

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Strategic Option:

Toyota could develop more hybrid and eco friendly cars

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A Product Development Strategy:More hybrid and eco friendly cars?

• This option is about developing upon the current range of products that have been developed in response to environmental concerns about motoring.

Toyota would need to• Build upon the success on Prius and RAVEV technology,

including electric and lithium battery models• Research the global markets that are most receptive to

adopt these fuel efficient, smaller vehicles• Continue to train the distribution network in selling and

marketing and servicing hybrid and electric vehicles and staff to deliver food and groceries to homes

• Continue to adapt their marketing campaign

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Strategic Option:

Toyota could expand in the Asian markets

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A Market Development Strategy:Further develop the Asian markets

• This option involves replicating and extending the successful Toyota Way across Asia – especially South East Asia which is a growth market for smaller vehicles in particular.

Toyota would need to:• Conduct market research to understand the specific future requirements

in Asian markets• Develop relationships or joint ventures with local manufacturers and

distributors in selected countries• Market specific low price vehicles (like the Nano in India)• Ensure that the supply chain can feed demand for Toyota products in

these markets

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Strategic Option:

Toyota could diversify into “smart communities”

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A Diversification Strategy:“Smart Communities”

• This option involves diversifying to target customers who want to live in smart communities which contribute to a greener environment by pursuing optimal energy use in living spaces at the community level. Toyota already has a pilot project in Aichi with the aim of bringing the carbon footprint of a smart house down 70% from a conventional house that uses a gasoline car.

Toyota would need to• Develop smart houses which include photovoltaic panels and fuel cells as energy sources,

rechargeable batteries for energy storage, “Ecocute” heat-pump-based water heaters and energy-efficient LED lighting.

• Link these together with a Home Energy Management System (HEMS) that enables the homeowner to monitor and regulate his energy consumption not just when he is at home but even when he is away, using his mobile phone. Individual HEMS will be internet connected to other HEMS and to the common facilities like schools, convenience stores, etc., so that in the event of high energy usage by any one user, others can lower their demand by turning off appliances and earning “eco-points.”

• Create a transportation system in the smart community using electric vehicles or plug-in hybrid electric vehicles. These will be supplemented by community-shared transportation, also electric. The HEMS will also permit energy demand and supply forecasting. For example, if the weather forecast predicts reduced sunshine, the HEMS will check the storage level of the battery in the EV or plug-in hybrid vehicle and either defer charging or even draw on the stored energy to manage the total demand. The battery of the EV will be the stand-by power source in the event of a total blackout.

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Evaluating the Options – Decision Methods

• Cost / benefit analysis– Quantifying costs and benefits in monetary terms– But it is hard to quantify intangibles such as the impact of strategy on culture

• Ranking and scoring– Rank strategic options by scoring them against criteria (e.g. return on investment)

• Investment appraisal– How to address the problem of risk– All strategies involve uncertainty– Return on investment: several methods– Need to include sensitivity analysis (e.g. what are the potential effects if things go

badly wrong?)

It is important to remember that Toyota has a strong track record. The brand has survived recent traumas under intense media and government scrutiny, and, as its success with the Prius attests, when Toyota is focused on something, it has a history of making it work.

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Evaluating Toyota’s Strategic Options: The key tests

The options can be assessed against three key criteria:

• Suitability: - does the chosen strategy:– Build on strengths and/or solve weaknesses?– Exploit opportunities and/or respond to potential threats?– Satisfy the goals and objectives of the business?– Fit the culture of the business?

• Acceptability:– Depends on the views of the key stakeholders– What level of risk does the business want to take?

• Feasibility:– What resources are available to support the strategy? (e.g. finance,

experience; management resources)

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Strategic Option: Organic Growth

Suitability

Acceptability

Feasibility

Fits well with existing strategy and objective of making cars more fun

Toyota has experience of this approach

Good fit with the corporate growth objectives

Enables Toyota to protect and develop its USP

Low risk because this is core business – more of the same

Could be considered as a rather conservative, but necessary strategy

Probably the simplest of the five options

Due to average gearing ratio, financial capital is available for investment in expansion through borrowing

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Strategic Option: Growth by Acquisition

Suitability

Acceptability

Feasibility

Fits with previous experience of growth by acquisition (e.g. Daihatsu)

Logical to expand through horizontal integration in this market

Would require an integration strategy

Would require significant capital to purchase the competitor

Could work in South East Asia

Shareholders might be unsupportive given the current low levels of profitability

Medium to high risk because acquisitions and the anticipated synergies are hard to deliver

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Strategic Option: Hybrid and eco friendly cars

Suitability

Acceptability

Feasibility

Supports the corporate growth objective

Builds upon Toyota’s current strengths in the hybrid and electric market-place

Would need to be certain that competitors did not have something better. A new wave of hybrids, diesels, and electric vehicles are currently rolling out including Nissan, GM, Ford, BMW and VW from cars to vans to electric bikes

Medium risk because they have experience of this approach, but have a track record of Prius recalls in the recent past

Toyota has experience of the design and technology requirements

Some more work required to set up the distribution and delivery networks and to integrate it within their core global business

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Strategic Option: South East Asian markets

Suitability

Acceptability

Feasibility

There may be gaps in the market in new territories, especially for “Japanese” products

The strategy is a good fit with their growth objective

Toyota is very experienced at going into new markets

Low/Medium risk with the prospect of good returns for early success

Financial investment is probably available for a phased expansion into new territories

Requires significant up front work building joint ventures and local partnerships abroad

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Strategic Option: “Smart communities”

Suitability

Acceptability

Feasibility

Toyota has experience of extending their technology skills into other areas (related diversification) through robotics and aerospace as well as unrelated diversification (Financial Services)

Reasonable fit with their Vision Statement

Could be acceptable for directors, but might mean taking their eye off the ball in the core motor market

Medium/high risk, unknown returns – this is a 10-20 year play, but Japanese companies are famed for taking a long term view

Pilot project is already up and running

Need for staff training and customer enlightenment

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Here are some things that you could do before the examinations in January and June 2012

Primary Research• If your school is within travelling distance of a Toyota dealership, go and visit and have a

look at their cars, their showroom, their point of sale material and their branding• If possible, talk to one or two of the Toyota staff and ask them what it is like to work for

Toyota. Try to gather some good points and some less good points and understand their views about the future of motoring and Toyota’s place within the industry

• If you know anyone who has bought a Toyota, interview them about the Toyota customer experience

– Why they bought Toyota rather than another brand?– Sales and service experience?– Are they a loyal customer?

Secondary Research• Keep up to date with market developments on a weekly basis by using your search

engine to trawl the web for– information and announcements about Toyota (the case study is written a long time in advance of

your examination, so you can expect updated accounts, sales figures and developments at Toyota between now and June 2012)

– articles and views about developments in vehicle manufacturing across the world– Web 2.0 information (blogs, twitter, internet discussion forums, customer feedback sites etc.)– Rises and falls in the Toyota share price on the London, New York and Tokyo Stock Exchanges

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Concluding thought…

“The best car safety device is a rear view mirror with a cop in it”

Dudley Moore