Automobiles are part of modern human’s life. For some people automobile is carrier, for others it is luxury. Nevertheless, by allowing people to commute long distances for work, shopping, and entertainment, automobile become unabrogated part of our life. Demand for automobiles remains high and inelastic. For instance, in advanced western households, and depending on the economy, the number of automobiles per family is greater than 1. (Domansky L 2006). Automobile industry is the industry that produces, designs, develops, manufactures and sells vehicles, including passenger cars, trucks, farm equipment, and other commercial vehicles. Around the world, there were about 806 million cars and light trucks on the road in 2007. The numbers are increasing rapidly, especially in China and India. In 2008, more than 70 million motor vehicles, including cars and commercial vehicles were produced worldwide (Wikipedia 2008).
Toyota Industries Corporation is the biggest Japanese machine maker. Initially, a manufacturer of automatic looms, it is parent company of Toyota Motor Corporation. Toyota Industries currently is active in 5 business areas: automotive, materials handling, electronics, logistics and textile machinery. (Wikipedia 2008). Toyota Motor Corporation or simply known as Toyota, is international corporation headquartered in Japan and the largest automaker by sales (please see Appendixes A and B). Toyota employs more than 300,000 people around the world. Originally, Toyota was founded by Kiichiro Toyoda in 1937 from his father’s company Toyota Industries in order to create automobiles.
1980 – The Toyota Motor Company received its first Japanese Quality Control Award and began taking part in a variety of motorsports. 1982 – The Toyota Motor Company and Toyota Motor Sales merged into one company, the Toyota Motor Corporation. 1990 – Toyota began to expand from producing mostly compact cars by adding many larger and more luxurious vehicles to its lineup. 1997 – Toyota began production of the world’s best-selling hybrid car, the Prius. 1999 – Entity was listed on the New York and London Stock Exchange 2002 – Toyota managed to enter a Formula One works team 2005 – Toyota ranked eighth on Forbes 2000 list of the world’s leading companies 2007 – Toyota Camry “Car of the Year” for 2007. (Wikipedia 2008)
The only way a company can make significant breakthrough innovation in product development performance is to build its own one with the patience and philosophical underpinnings that has led to the success of Toyota. Toyota’s innovations have focused on process rather than on product. That has made those innovations hard to see. But it hasn’t made them any less powerful. The company’s success is the Toyota Production System, which took place after the Second World War. (Taiichi Ohno 1990). Taiichi Ohno, a Toyota engineer turned need into advantage, coming up with a system to get as much as possible out of every part, every machine, and every worker. The principles were simple – do away with waste, have parts arrive precisely when workers need them, fix problems as soon as they arise. What Toyota has done, better than any other manufacturing companies, is turn theory into practice. In some cases, it has done so with findings, like the andon cord, which means any worker can pluck to stop the assembly line if he notices a problem, or kanban, a card system that permits workers to signal when new parts are needed. Moreover, it has done so by reorganizing factory floors and workspaces in order to allow for a freer and easier flow of parts and products. Most innovation concentrates on what gets made. Toyota reinvented how things got made, which enabled it to make cars quicker and with less labor than other companies. (Liker J 2004) Toyota determines innovation as an incremental process, in which the aim is not to make big, unexpected jumps but, rather, to make things better on a daily basis. (The principle is frequently known by its Japanese name, kaizen – persistent improvement.) In place of trying to throw long touchdown passes, as it were, Toyota moves down the field by means of short and stable gains. And so it rejects the idea that innovation is something far away from reality; instead, it is taken to be an everyday task for which everyone is responsible. (Morgan J., Liker J. 2006) However, in 2006, Toyota ran into a series of quality problems – and it’s possible that the focus on incremental innovation would be less well suited to businesses driven by large technological jumps. But, on the whole, the results are hard to argue with. They are also phenomenally hard to copy. The main reason is most companies are still organized in a very top-down manner, and have a hard time handing responsibility to front-line workers. But it’s also because the fundamental ethos of kaizen – slow and steady improvement – runs counter to the way that most companies think about change. Most companies hope that the right concept will turn things around overnight. The Toyota approach is more like a regular, less dramatic but, much harder to uphold. Toyota’s innovative methods may seem impossible, but their absolute relentlessness defeats many companies. That’s why Toyota can afford to hide in pure sight: it knows the system is easy to understand but hard to follow. (James Surowiecki, 2008).
Toyota has taken the following seven key actions in order to structure their innovation.
As all important decisions in the innovation process are made by top management’s agreement a time delay will result. Therefore the rest of the decisions need to be delegated to the innovation team in order to avoid such cases and enable innovation. The compliance of top management is only required at the milestones or gates of the innovation process. The members of the innovation team should be available to the team with 100% of their time in order to bring the innovations to market as soon as possible. The degree to which decisions are delegated to the teams and the degree of availability of the members for the innovation teams differ, however. Toyota has fully dedicated innovation teams with 100% availability of their members.
The organizational integration of the majority of R&D into the business units makes innovation management more effective. It nurtures the co-operation with the other departments of the business unit and the orientation towards the customer in lieu of an exclusive focus on the technology. Moreoverit improves the preconditions forinnovation.
Bylocating all innovation team members and relevant departments of a divisionin the same place,Toyota makes sure that everybody hears the same thing at same time. This way the information does not get disfigured. Spontaneous communication and exchange of ideas are assisted. Co-location raises the possibility that in the management of an innovation the requirements of the market-place and of the technology are simultaneously taken into consideration and that the innovation gets to market faster. (Liker J 2004)
Themanagementof innovations that will result in a new category or that will cut across multiple categories often necessitates the use of central innovation teams that are not engaged to individual divisions. This central innovation team then report toa managerat the corporate headquarters. Such central teams are mainly used in cases when the motivation and resources of individual divisions, categories, product groups or brands are insufficient to get the respective innovation to market with maximum effort and at maximum speed despite the daily pressure and distractionfrom the established operation. However, for a successful innovation management it is important that the innovation project from its verybeginning has a division, category, product group or brand assigned.
The innovation projects in most cases need a special budget to get sourced because the divisionsshy away frommaking funds available given the typically high risk of such projects. Without a central innovation fund these innovations would not be launched fast, if they would get to market at all.
Open innovation is a core strategy of innovation management in order to get innovations to market more quickly and enable innovation. In order to perform Open innovation and to channel external solutions and ideas into the company, innovation management needs an effective external interface.
A special organizational structure of managing for innovation via Open innovation is the M&A department which is involved in the acquisition of innovative companies. By way of acquisitions Toyota could significantly strengthen its innovation management, and have been in the market-place with innovations much faster. (Dr. Rolf – Christian Wentz 2008)
Now let’s look at Toyota Production System in the example of Toyota Corolla production. The Corolla is one of the best-selling automobiles in history and the heart of every other car that Toyota makes. Takeshi Yoshida’s (chief engineer for the 2003 Toyota Corolla) assignment was complicated: to keep the price of the new Corolla under $15,000 while improving the design and adding high-tech options that would win over young drivers. Yoshida came with a new approach to planning and engineering: more innovation, lower costs, higher quality, and fewer last-minute changes. That new approach is described in one word: oobeya (ooh-bay-yuh). It’s Japanese for “big, open office.” In terms of business that means, in order to change the way that you create a product, change when, how, and with whom you share information. For Toyota, oobeya means bringing together people from different, even all parts of the company – whether they’re from finance, engineering, manufacturing, logistics, design or sales — every month for the two years before a car goes into production. Meetings can be hold anywhere (Yoshida has convened oobeyas all the way from Toyota City, Japan to Erlanger, Kentucky), and everything is open for discussion: how to maximize profit, cut costs and reduce mistakes. At the beginning, oobeya meetings concentrated on squeezing costs. Almost every penny spent on the Corolla was argued over, fought for, and explained. Between meetings, people kept the discussion going through email and phone calls. Some of employees even create their own smaller oobeyas to undertake specific problems. Yoshida held his first Corolla oobeya in early 2000. The first order of business was to determine the exact cost of creating a single Corolla. As the different employees looked beyond their own departmental budgets, all kinds of smart savings came into view. For instance, In North America, Toyota was making the bulk of its Corollas with sunroofs in Canada, while a plant in California was not outfitted to make them. Once logistics told manufacturing that it cost $300 per car to haul sunroof-equipped vehicles from Canada to warm-weather states, executives revised the assembly process. “”Someone probably noticed this problem before but never did anything about it,” says Don Esmond, senior vice president and a general manager at Toyota Motor Sales U.S.A., who was a regular at Yoshida’s oobeyas.” This time, we changed an entire plant. It cost $600,000. But it will end up saving us millions.” Esmond set up his own oobeya at his headquarters in Torrance, California to tackle a smaller cost problem: expensive four-color brochures. “They cost so much to produce, and they were too expensive for dealers to buy,” Esmond explains. The solution: Enhance the Toyota Web site to include the full-color brochures so dealers or customers could print one out. “We saved another $2 million,” he says. If Esmond’s group showed a willingness to cut costs, they also felt comfortable enough with oobeya-based insights to add costs. Esmond argued that adding features like a CD player, sleek wheel covers, and a 60-40 split backseat would help Yoshida sell Corollas to a younger crowd. Esmond also suspected that such features would come standard in cars within two or three years. If Toyota didn’t include them now, dealers would have to discount those optionless cars in the future.” (Fara Warner, 2007) While the new Corolla made it to market in March 2002, Yoshida was pleased with what oobeya had helped him to achieve. He succeeds in keeping the base models under $15,000, but he had given up nothing in quality. In fact, Toyota did not have to make only change to the car once the final design was set. That is unprecedented in an industry where design, engineering, and manufacturing often argue over quality problems right up until the first car rolls off the assembly line. “Oobeya is all about the power of open minds. Explains Yoshida: “There are no taboos in oobeya. Everyone in that room is an expert. They all have a part to play in building the car. With everyone being equally important to the process, we don’t confine ourselves to just one way of thinking our way out of a problem.” (Fara Warner, 2007)
In today’s world, in order to become a leader in industry the organization must be innovative. Toyota’s “invisible innovation” where top management involved each employee was extremely effective. The company was first in the marketplace that performed such innovation and become a leader. Engaging all departments helped to find easier, smarter and faster ways to solve problems within production process. Toyota was able to look forward at the strategy and know how to bring products to market quicker than their competitors. Innovation is the key. It’s not just for the technology; it’s for the business strategies as well. In order to stay a leader in the market Toyota should always think out something new that adds value, see beyond what is visible, connect un-connectable and stay creative. In addition, Toyota should keep creating a strategic view, establishing innovation as priority, establishing processes to convert ideas to innovations, recognizing creative behavior
By following to the same principles for more than eight decades while continually changing and improving the specific methods and processes, Toyota has made steady and significant progress since the 1950s. The main reason is that the company remained grounded in modesty, listening to the customer without haughtiness and striving to make a positive contribution to its community and the larger world, Toyota finds itself in the 21st century faced with enormous opportunity and responsibility. However, Toyota’s major business is automotive design, sales and service – still holds the most promise and the most opportunity for contributing to society. This mission becomes important not only for Toyota, but also for the whole industry as well Toyota Production System is strong and powerful. The company constantly develops higher quality vehicles faster, for less cost and at a greater profit than its competitors. It also launches more new vehicles annually than the rest of its competitors, creating a steady flow of high quality new products to meet customer demand. Reason for these successes is the speed and product freshness. This competitive advantage has enabled Toyota to more than double the number of unique models. Moreover, this speed to market does not come at a high price. Toyota has the lowest R&D ration to sales. By correlating its production capacities with common architecture strategies, standard process and component sharing, Toyota reaches an incredible overall cost advantage. In addition, one of the Toyota’s strengths has been the ability to learn from others. In doing so, Toyota has thoroughly taken into account the implication, guided the new approach, considered the costs and benefit, and adapted the new approach to improve a current process.
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