Strategic Management Case Study - Toyota

1. Genevieve Hrdlicka
Ioannis Mikedis
15 May 2014
1

2. 1. Overview of Company
A. Introduction of Case
B. Timeline of Toyota Recalls
2. Strategic Management Model
A. Company Mission
B. Social Responsibility
C. Ethics
D. External Environment
• Global
• Domestic
E. Internal Analysis
• SWOT Analysis
• Value Chain
F. Strategic Analysis and Choice
• BCG Growth Share Matrix
G. Long-term Objectives
• Balance Scorecard
H. Generic & Grand Strategy
I. Implementation
• Short-Term Objectives
• Functional Tactics
• Policies
J. Organizational Structure, Leadership & Culture
K. Strategic Control, Innovation & Entrepreneurship
3. Conclusion
2

3.  TOYOTA MOTOR CORPORATION: A Japan-based
company mainly engaged in the automobile and
financial business.
 Toyota Motor Co., Ltd. Established 1937
 Headquarters are in Japan
 CEO is AkioToyoda
 Revenue (2012): 18.583T ¥, $224B; Profit (2012): 283.55
B¥, $3.4B
 Employees: 300,742 (2012)
 The Company operates through three business
segments.
 The Automobile segment,The Finance segment, andThe
Others segment
3

4. TheType-GToyoda Automatic
Loom, the world's first automatic
loom with a non-stop shuttle-
change motion, was invented by
SakichiToyoda in 1924.This loom
automatically stopped when it
detected a problem such as thread
breakage
4

5. Sep 2006: NHTSA opens an investigation into driver reports of surging in Camry models
Sep 2007: Toyota & Lexus models recalled to fix a floor mat issue
Jan 2008: NHTA opens an investigation ofTacoma truck models experiencing sudden acceleration
Apr 2009: A family of four is killed
Sep 2009: Toyota issues a safety notice for 3.8 M cars while NHTSA requests a 3.8 M car recall.
Nov 2009: Toyota recalls 4M cars
Dec 2009: Four people die in Dallas
Jan 2010: Toyota recalls 2.3M cars. Suspends sales and halts production of 8 car models
Feb 2010: Toyota recalls 8.5M cars and states that the recalls could cost up to US$2 Billion. CEOAkioToyoda apologizes,
accepts a formal invitation to appear to a Congressional committee
Internal Memo:Toyota saved 100Million by negotiating an equipment rather than a vehicle recall.
CEOToyoda apologizes during a prepared testimony to a Congressional oversight committee
Apr 2010: Toyota agrees to settle the civil penalty demanded by NHTA of US$16.4 M. It establishes the Swift Market
Analysis ResponseTeam to address any concerns within 24 hours.
Moody’s downgradesToyota’s credit rating from Aa2 to Aa1
Mar 2014: Toyota Reach $1.2 Billion SettlementOver Its DisclosureOf Safety Problems
5

6.  Size of Recall: 9 million vehicles
Models Affected: 2004-2010 Toyota Avalon,Camry, Corolla, Matrix,
Highlander, Prius, RAV4,Tundra,Tacoma and various Lexus models.
 What Happened? A combination of manufacturing flaws turnedToyota's
fleet of vehicles into automotive runaways.
 Company officials have estimated the cost of the blunder will top $5 billion
after all is said and done, making it the costliest recall ever recorded.
6

7.  Size of Recall: 21 million vehicles
Models Affected: All Ford vehicles
manufactured between 1976 and 1980.
 What Happened? A failed safety catch, allowed
Ford's automobiles to spontaneously slip from
"Park" to "Reverse" without warning.
 The recall ended up losing Ford around $1.7
billion according to company officials.
7

8.  Size of Recall: 8.3 million vehicles.
Models Affected: Numerous models made by
Honda, Nissan, Chrysler, Mitsubishi, GM, Mazda,
Suzuki, Subaru and Isuzu between 1986 and
1995.
 What Happened? In the mid-90s, nearly every
major auto manufacturer was using seatbelts
produced by theTakata Corporation of Japan.
 The button on the latch of the belt was prone to
crack and jam the locking mechanism.
 Estimated cost of $1 billion.
8

9.  A combination of design issues, production
issues, PR mistakes, and culture
miscalculations created a storm of bad
publicity, legal exposure, and expensive
settlements.
9

10. 10

11. 0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Mercedes Mazda GM Nissan Subaru Kia Toyota BMW Ford Honda
Rate of Recall: (cars recalled/cars sold)
Better Worst 11

12. 12

13. 13

14. 14
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Audi Sales 1970 - 2005

15. 15
0
500
1,000
1,500
2,000
2,500
3,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
North America - Production
North America - Sales
Log. (North America - Sales)

16. 16
$1.2 Billion Settlement

17. Company Mission,Goals, and Objectives
17

18.  Society and Culture: “Toyota is working toward creating a
harmonious, self-sustaining society where a diverse range of
people respect one another and work together, by assisting with
local social contribution projects, supporting welfare services,
encouraging self-reliance and other initiatives.”
 Problem: “Working toward” – too strict of a company culture and
reporting chain that change is not easily managed and innovation
outside of the structure is not feasible
 Recommendation:
 Reorganize
 Place R&D Higher
 Create follow-back loops:
▪ For the
18

19.  Toyota has focused on increasing market share thinking the time is against
them (China)
 Toyota’s management focused on creating a strong balance sheet and lost
touch with their core values of creating satisfied (happy) customers
 Toyota focused on quality assurance and forgot about quality assurance
 Quality Assurance makes sure you are doing the right things, the right way.
 Quality Control makes sure the results of what you've done are what you expected.
 The difference is that QA is process oriented and QC is product oriented.
 Toyota’s culture of centralizing decisions created delays in addressing PR and
real safety issues.
19

20. 1. Be contributive to the development and welfare of
the country by working together, regardless of
position, in faithfully fulfilling your duties;
2. Be at the vanguard of the times through endless
creativity, inquisitiveness and pursuit of
improvement;
3. Be practical and avoid frivolity;
4. Be kind and generous, strive to create a warm,
homelike atmosphere; and
5. Be reverent, and show gratitude for things great
and small in thought and deed
20

21.  Honor the language and spirit of the law of every nation and
undertake open and fair business activities to be a good corporate
citizen of the world.
 Respect the culture and customs of every nation and contribute to
economic and social development through corporate activities in
their respective communities.
 Dedicate our business to providing clean and safe products and to
enhancing the quality of life everywhere through all of our activities.
 Create and develop advanced technologies and provide outstanding
products and services that fulfill the needs of customers worldwide.
 Foster a corporate culture that enhances both individual creativity
and the value of teamwork, while honoring mutual trust and respect
between labor and management.
 Pursue growth through harmony with the global community via
innovative management.
 Work with business partners in research and manufacture to achieve
stable, long-term growth and mutual benefits, while keeping
ourselves open to new partnerships. 21

22.  Toyota lacks a proper official mission statement and uses its vision
statement/global statement in combination:
 Mission Statement: "To attract and attain customers with high-
valued products and services and the most satisfying ownership
experience in America.“
 Vision Statement: "To be the most successful and respected car
company in America.”
 “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 our
challenging goals by engaging the talent and passion of people, who
believe there is always a better way.”
22

23. Column1 Mission Statement Components Toyota Corporation
1 Customer Market YES
2 Product-Service NO
3 Geographic Domain NO
4 Technology NO
5 Concern for Survival YES
6 Philosophy YES
7 Self-concept YES
8 Concern for Public Image YES
23

24.  Toyota is the world’s best car company producing the latest
innovations in the widest array of motor vehicles supporting the
needs of most every customer.
 From compact cars, hybrid cars, electric cars, trucks, and SUVs;
Toyota Motor Company continues to break bounds in research and
development for the betterment of motorists.
 We 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 continue
to produce a bond between our customers and their vehicles.
 We will meet our challenging goals by engaging the talent and
passion of people, who believe there is always a better way.
24

25.  "Toyota Industries
Corp. Named by
FORTUNE
Magazine as One of
theWorld's Most
Admired
Companies”
BusinessWire (New
York) 19 July 2006
25

26.  “Seeking Harmony with People, Society, and
the Global Environment, and Sustainable
Development of Society through Monozukuri
(Manufacturing)”
26

27. 27

28. Chairman of the Board
Vice Chairman of the Board
President, Member of the Board
Executive Vice President, Member of the Board
Lexus International
North America Operations
Group
Europe
Operations Group
China
Operations
Group
Asia & Oceania
Operations Group
Middle East, Africa
and Latin America
Operations Group
Business Development
Group
IT & ITS
Group
External
Affairs
Group
General Administration &
Human Resources Group
Accounting
Group
Purchasing
Group
Japan Sales
Business
Group
Customer First
Promotion Group
Technical
Administration
Group
Product
Planning Group
Design
Group
R&D
Group 1
R&D
Group 2
Production
Control Group
Production
Engineering Group
Manufacturing
Group
Corporate
Auditor
28
There are “silos” in the corporation that don’t talk to each other.

29. 29

30. 30
Flexible?

31. 31

32. 32

33. 33

34. 34

35. 35

36. 36

37. 37

38. Strategic Environment, Direction, and Recommendations
38

39. ThreatofNewEntrants
Strong
• Large amount of
capital required
• Few legal barriers
protect existing
companies from
new entrants
• All automotive
companies have
established brand
image and
reputation
• Products mainly
differentiated by
design and
engineering
quality
• New entrant could
easily access
suppliers and
distributors
• Very hard to
achieve economies
of scale for small
companies
• Materials widely
accessible
SupplierPower
Weak
• Large
number of
suppliers
• Some
suppliers are
large but the
most of them
are pretty
small
• Materials
widely
accessible
• Suppliers do
not pose any
threat of
forward
integration
BuyerPower
Strong
•There are many buyers
•Most of the buyers are
individuals that buy
one car, but
corporates or
governments usually
buy large fleets and
can bargain for lower
prices
•It doesn’t cost much
for buyers to switch to
another brand of
vehicle or to start
using other type of
transportation
•Buyers can easily
choose alternative car
brand
•Buyers are price
sensitive and their
decision is often based
on how much does a
vehicle cost
•There are many
alternative types of
transportation, such as
bicycles, motorcycles,
trains, buses or planes
•Substitutes can rarely
offer the same
convenience
ThreatofSubstitutes
Weak
• There are
many
alternative
types of
transportation,
such as
bicycles,
motorcycles,
trains, buses or
planes
• Substitutes
can rarely offer
the same
convenience
• Alternative
types of
transportation
often cost less
and sometimes
are more
environment
friendly
CompetitiveRivalry
Very Strong
• Moderate number
of competitors
• If a firm would
decide to leave an
industry it would
incur huge losses,
so most of the
time it either
bankrupts or stays
in automotive
industry for the
lifetime
• Industry is very
large but matured
• Size of competing
firm’s vary but they
usually compete
for different
consumer
segments
• Customers are
loyal to their
brands
• Moderate threat of
being acquired by
a competitor
39

40.  Remote Environment
▪ Economic
▪ Social
▪ Political
▪ Technological
▪ Ecological
 Industry Environment
▪ Entry Barriers
▪ Supplier Power
▪ Buyer Power
▪ Substitute Availability
▪ Competitive Rivalry
 Operating Environment
▪ Competitors
▪ Creditors
▪ Customers
▪ Labor
▪ Suppliers
40

41.  Economic Factors
 The world economic situation has recovered to great extend
▪ World Output has recovered and is expected to hover around 3.9%
▪ Consumer Confidence is also showing significant global improvements
 Oil prices from a historical low levels are rapidly increasing
 High prices in steel and plastic have increased manufacturing prices
 Social Factors
 Environmentally aware and highly responsive global population
 Political Factors
 Product recalls in the industry have created a renewed sensitivity
(congressional hearings)
 Technological Factors
 Sustainable technologies
 Product innovation (modular assembly)
 Ecological Factors
 Green code (part of the building code now)
41

42. 42

43. 43

44. 44

45. 45

48.  Auto Industry - main competitors
 Toyota 12.8%
 G M 8.9%
 Daimler 9.1%
 Ford 7.8%
 Other 62.4%
Toyota
12%
GM
9%
Daimler
9%
Ford
8%
Other
62%
% Global Share
48

49. 49
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
2007 2008 2009 2010 2011 2012
Europe
America
Asia
Expon. (Asia)

50. 50
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
2007 2008 2009 2010 2011 2012
China
Japan
Expon. (China)
Expon. (Japan)

51. 51
Japanese translation:
“Headless combine”
Corporate structure
in which a number
of organizations link
together – resulting
in close business
relationships.

52. -
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
VW
TOYOTA
HYUNDAI
GM
HONDA
NISSAN
FORD
PEUGEOT
SUZUKI
RENAULT
BMW
SAIC
FIAT
DAIMLER
MAZDA
MITSUBISHI
CHANA AUTOMOBILE
TATA
CHRYSLER

53. -
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
VW
TOYOTA
HYUNDAI
GM
HONDA
Expon. (HYUNDAI)

54. Functional, Financial, and OrganizationalAnalysis and Recommendations
54

55. Technological Development: Reduction in scrap by using
automated tech; Process Engineering to reduce manuf. costs
HR Management: Employee turnover cost reduction
through effective orientation & training
Firm Infrastructure: Few management layers;
Standardized accounting practices
Procurement: Policy guidelines for sourcing of low cost raw materials;
Sharing of purchasing operations with other business units
Inbound
Logistics:
Efficient
layout of
receiving
dock
operations
Operations:
Effective
use of QC
inspections
to minimize
re-work
Outbound
Logistics:
Effective
use of
delivery
fleets
Marketing
& Sales:
Purchase of
material in
large
blocks;
Sales force
optimization
via territory
manag.
Service:
Guidelines
to minimize
repeat
calls;
Support
Activities
Primary Activities
55

56. Valuable
• It has been
proven to
keep
production
costs low
Rare
• Just-in-time
production is
a popular
strategy used
by
companies in
all industries;
however,
Toyota’s
methodology
is unique.
Inimitable
• Competitors
have not
successfully
managed to
recreate the
system.
Organization
• Toyota has
been using
this system
since the
1960’s and
have been
perfecting it
along the
way.
Competitive Implication:This creates a sustained competitive advantage 56

57. Valuable? Rare? Difficult to
Imitate?
Supported by
Organization?
Competitive
Implication
Performance
YES YES YES YES Strong
Competitive
Advantage
High
57

58. Organizational Position of theTMC SpecialCommittee for Global Quality (as of March 30, 2010)

59. FINANCIAL STRENGTH Company Industry Sector
Current Ratio (MRQ) 1.05 1.29 1.45
LT Debt to Equity (MRQ) 60.61 37.77 35.74
Total Debt to Equity (MRQ) 115.22 79.66 73.35
59

60. PROFITABILITY Company Industry Sector
Gross Margin - 5Yr. Avg. 12.45 19.90 22.71
EBITD - 5Yr. Avg 8.16 14.05 14.63
Operating Margin - 5Yr. Avg. 1.85 11.51 11.71
Net Profit Margin - 5Yr. Avg. 0.98 10.86 10.46
EffectiveTax Rate (TTM) 32.73 20.21 22.42
EffectiveTax Rate - 5Yr. Avg. 54.58 23.05 28.99
60

61. EFFICIENCY Company Industry Sector
Revenue/Employee (TTM) 732,810 161,788,074 136,312,675
Net Income/Employee (TTM) 49,381 16,474,089 13,745,515
ReceivableTurnover (TTM) 3.42 11.20 11.67
InventoryTurnover (TTM) 11.54 10.33 11.46
AssetTurnover (TTM) 0.69 0.92 0.92
61

62. MANAGEMENT EFFECTIVENESS Company Industry Sector
Return on Assets (TTM) 4.63 10.02 9.69
Return on Assets - 5Yr. Avg. 0.63 11.83 11.01
Return on Investment (TTM) 7.40 16.97 15.93
Return on Investment - 5Yr. Avg. 1.02 20.08 18.35
Return on Equity (TTM) 14.45 22.45 20.73
Return on Equity - 5Yr. Avg. 2.68 25.10 22.83
62

63. 63

64. Direct Competitor Comparison TOYOTA FORD GM HONDA Industry
Market Cap: 172.73B 61.37B 55.73B 60.67B 55.73B
Employees: 333,498 183,000 219,000 N/A 274.62K
Qtrly Rev Growth (yoy): 0.24 0.00 0.01 0.13 -0.13
Revenue (ttm): 243.98B 147.22B 155.95B 115.76B 121.34B
Gross Margin (ttm): 0.19 0.12 0.11 0.26 0.18
EBITDA (ttm): 35.86B 11.45B 10.95B 15.10B 10.95B
Operating Margin (ttm): 0.10 0.03 0.03 0.06 0.07
Net Income (ttm): 17.99B 6.53B 3.03B 5.61B N/A
EPS (ttm): 11.35 1.61 1.87 3.11 2.54
P/E (ttm): 9.61 N/A N/A N/A 107.14
PEG (5 yr expected): 0.27 0.95 0.52 N/A 3.54
P/S (ttm): 0.71 0.42 0.36 0.53 0.58
64

65. Strategic Control & Recommendations
65

66. Opportunities
Weaknesses
Threats
Strengths
Innovative
Culture
Brand reputation
valued at $30B
Industry leader in
production &
sales
Strong brand
portfolio
The leader in
“green” car
development
Large recalls
threaten brand
image
Weak presence
in emerging
markets
Poor allocation
of resources
(ROE, ROA)
Global industry
growth after
economic
downturn
Positive outlook
towards “green”
vehicles
Increasing fuel
prices
Changing
customer needs
Growth through
acquisitions
Fluctuating fuel
prices
New emission
standards
Rising raw
material prices
Intense
competition
Natural disasters
Appreciating ¥
exchange rate
66

67. Financial
Objectives
• Increase sales in key
geographic segments
Measures
• Analyze sales in each
organizational sector for
the most profitable
geographic segments
• Perform Lean analysis of
each organizational
sector in the geographic
segments
• Create metrics of the
growth for each
segment
Targets
• Increase sales by 15%
each year for the lowest
segments
Initiatives
•Reach out to the lowest
segments and analyze the
downfalls, projected
earnings if sales and
production were greater
focus in these areas
Customer
Objectives
• Increase brand image
(due to recall fiasco)
Measures
• Measure branding
through customer
surveys and consumer
reports of brand image
• Go to local schools and
take polls to see which
automotive companies
are the highest of
prospective employers
Targets
• Increase branding by
10% in 2 years
Initiatives
• Create metrics for
consumer notoriety and
likability of brand
• Create newAds
• Go to technology
colleges/schools to
promote brand and
recruit new talent
InternalBusinessProcess
Objectives
• Improve organization
flow
• Enhance mission
statement
Measures
• Create customer
surveys of mission
statements
Targets
Initiatives
Learning&Growth
Objectives
•Continue Six Sigma Practices,
but open up to 21st century
organizational practices (i.e.,
Google, Yahoo, Apple, etc.)
•Open up to more feedback
loops to avoid long-turn
around decision-making
•Provide more customer
service training
Measures
•Create metrics to measure
new customer service
practices enhancements
Targets
•Improve customer service
and employee growth by
15% within a year across all
organizations and
geographic sectors
Initiatives
•Create customer service
rewards and goals to improve
new customer service
practices
•Create performance rewards
for employees who reach out
to different organizations
(outside of their silo)
67VISION AND STRATEGY

68. STAR
Lexus-luxury sedan
Prius – Hybrid
Land Cruiser – SUV
QUESTION
Scion – Young in US
Camry/Corolla – hybrids
Bio-fueled, Solar powered,
H2
Diesel engine cars – India, SE
Asia
Small Cars – India/China
CASH COW
Camry, Corolla
sedans
Innova,Vanza
Daihatsu – small cars
DOG
Celica, MR2 – young
Tundra – Pick up
Declining Markets in
Europe and UK
Diesel cars to be phased
out
High
Relative Market Share
Low
Relative Market Share
High
RelativeMarketGrowth
Low
RelativeMarketGrowth
68

69. Objectives & Goals
69

70.  Key Strategic Options Needed to Grow
▪ Restructure organizational plan
▪ Remove silos
▪ Stress Quality Assurance AND Quality Control
 Continual feed-back loop with less weight on lengthy management
approvals for minor impacts or costs
▪ Reinforcing brand to repair public image
▪ Make it a goal to win the highest safety rating the next year
and beyond
▪ Re-evaluate the core philosophy
▪ Expand in China
▪ Especially Lexus
▪ Reinforce Lean & Six-Sigma practices
70

71.  3 – 7 years
 Pursue further joined ventures in China
 Sales expected to exceed 23 million cars by 2020
 Pursue a strategy of opening the market of
India
 Cultivate leads in Africa’s 1 billion population
 Premise Control
 Strategic surveillance
 SpecialAlert Control
 Implementation
71

72. 72

73. 73

74.  1 – 3 years
 Increase the number of distribution centers in
China to shorten the distance to the market
74
Country/Region Number of Countries Number of Distributors
North America
3 5
Europe 36 30
China 1 4
Asia (excl. China) 17 12
Oceania 17 14
Middle East 17 16
Africa 53 45
Central and South
America 31 42

75. Strategic
Priority
Functional
tactic
ThisYear
(2014)
Start Finish Ownership Budget
Identify
locations to
expand in
Africa
Review
market
metrics
from the 5
richest per
capita
countries in
Africa
S.Africa,
Nigeria
1-Jun-14 1-Sep-14 Marketing
Division
$500,000
Study
Disposable
Income
growth
opportuniti
es
Collect
regional
data
S.Africa,
Nigeria,
Egypt,
Algeria,
Angola
1-Jun-14 1-Sep-14 Africa
Division
$250,000
75

76.  Average response time on addressing a
complaint exceeding best in class – 24 hrs
 Number of cars sold in China decline by 5%
year over year
76

77.  Modular Assembly
 Constructing a car form common building blocks will enable
Toyota to have flexible manufacturing differentiating models
according to different global markets
 Pros:
▪ Flexibility in production of varied models from the same production line.
▪ Frees the OEM t0 concentrate on brand, product and price.
 Cons:
▪ Volumes will decrease and supplier volume discounts will be a challenge.
▪ Automakers will need to design super-flexible platforms under
competitive cost structure
▪ Retooling cost will be significant.
77

78.  ElectricCars
 Pros:
▪ Compliance with emission standards
▪ Savings from the rising cost of gas
 Cons:
▪ High Costs and low performance perception is expected
to remain high
▪ Recharging or swapping battery banks at refueling
stations is a logistical challenge
▪ Battery weight, cost and reliability is a challenge
78

79.  Update Mission Statement
 Emerge into Chinese market more
 Create actions for recommendations within
 Restructure organization to be less silo-ed
 Incorporate more QualityAssurance, not just
Quality Control
79

80. 80

81. 81

82. IndustryAttractiveness
Business Strength
Strong Average Weak
High Economic Factors
Medium Financial Norms
Cost Position
Low
82