Toyota’s Rise to the Top

In an ever increasingly competitive world there is naturally going to be more pressure on organisations to ensure that they are performing as efficiently as they possibly can. Industries, specifically industries such as car manufacturers, are becoming much more global and whereas a domestic company could have previously rested somewhat on its laurels, this is no longer the case. Today’s businesses must continue to look for ways in which they can outperform their competitors. Business processes by their very nature are ever changing. Particularly when it comes to manufacturing, there is consistent pressure on organisations to improve the value, the costs and the quality of what they are producing. The best way of doing this is to evaluate, continuously, the processes that the business has in place. There are many different ways that business may do this such as benchmarking or looking to improve value. The most appropriate choice of method or even choices will depend on several different factors, many of which are individual to the business, itself (Feigenbaum, 1991). In this paper, we are considering Toyota Motor Corporation and its rise to become the largest car manufacturer in the world. Firstly, the background to Toyota will be considered and how it has risen to become number one. Then, the individual factors that make Toyota successful will be considered, as it is these factors that will become critical in the evaluation process. From this set of criteria an evaluation method will be developed which indicates how well Toyota is performing in the various different elements; these will then be ranked in order of importance (Swamidass, 2002). It will then be possible to look at the types of evaluation tools that are available to Toyota and which ones would be the most successful in ensuring that these performance criteria are met. In the appendix, there is an evaluation matrix which shows the various different evaluation tools available and considers which ones would be the most appropriate, given the criteria laid out by Toyota.

Background to Toyota

Toyota Motor Corporation is now the world's largest automobile maker. Its headquarters are located in Japan, although it is now a multinational company with approximately 316,000 employees, across the world. Its rise to this global level happened relatively rapidly. The inception can be dated back to 1934 although, in reality, Toyota Motor Corporation was still a department of Toyota Industries at this point. However, during this year it designed and created its first type A engine. It took a further two years for it to develop its first passenger car which was known as the Toyota AA. Recognising the potential in this market, Kiichiro Toyoda established Toyota Motor Corporation, in 1937. It was still inherently linked and was seen as a spin-off company of Toyota Industries, during the early days. The establishment of Toyota Motor Corporation neatly coincided with the beginning of World War II and during this time Toyota became heavily involved in producing military trucks that were both efficient but also highly economical. After the end of World War II, Toyota was quick to capitalise on the knowledge it had gained and produced passenger cars on a commercial basis from 1947 onwards, beginning with the SA model (Boyson et al., 1999). Recognising the importance of the sales team in securing the future health of the company, a separate sales company called the Toyota Motor Sales Company was established.

By ensuring that the sales function was conducted by a specific company, it was possible to ensure that the correct expertise was located in the correct area of the business and that the manufacturing arm was able to focus purely on manufacturing, while the sales arm focused exclusively on sales. Following similar strategies, a dealer chain was established which allowed the Toyota Crown to be the first car ever to be exported from Japan, in 1957. Further expansions took place in the 1960s, focusing on the key areas that would give Toyota competitive advantage in its sector including the establishment of a research and development facility. This allowed yet further expansion into other markets and, during the 1960s, the company’s 10 millionth vehicle was produced. The company also entered into partnership with other large manufacturers such as Daihatsu, at this point, to expand its reach further (Grantham & Carr, 2002). Worldwide dominance began, in 1963, with the first car made for the domestic market outside of Japan being built. It took less than 10 years from this point for Toyota to gain a worldwide presence. Complementary areas of business have been developed such as Toyota Financial Services, which has allowed the company to offer consumers financing for their products. It has been its ability to recognise the key factors which consumers want from a motor company that has allowed it to grow to be the largest company of its type in the world.

Drivers for Toyota’s Success

Toyota’s success can be attributed to several different factors, each of which when brought together has ensured that Toyota has become the world leader that it is today. Firstly, even back in 1954, Toyota recognised that the way in which their production and delivery was going to happen could be the difference between success and failure (Easton & Jarrell, 1998). They established the ‘kanban’ delivery system also referred to as synchronised delivery, which is broadly based on the supermarket system. Under this system, those working in the production stages took the products they needed from the actual shelves and those earlier on in the production line, the storekeepers, would replenish stock so that it was up to employees in the early stages of the production process to ensure that there were suitable resources available for the future stages. This remains central to Toyota production system to the present day. There are now multiple manufacturing plants across the world, each serving its own geographical area. By adopting this method, not only does Toyota gain presence in more countries which will assist with sale levels, but it also reduces the time it takes to deliver the vehicles. Costs are also reduced in this way, meaning that whenever Toyota moves into another country, it takes with it its entire manufacturing and research facility (Child & Faulkner, 1998).

As well as working closely on the production control systems, Toyota also realised as early as the 1950s that the automobile market was likely to become flooded and that it was going to have to develop vehicles that allowed it to maintain a competitive advantage. In order to do this, Toyota put considerable investment into ensuring that it had the best equipment possible and that research and development was placed at the forefront of Toyota's strategy (Zhang, 2000). The combination of the production process and extensive research and development allowed Toyota to expand its passenger car offerings rapidly including the Crown model, the Corona and the Toyo-Ace. Toyota has always been very innovative in its approach. For example, Toyota Motor Sales capitalised for 1 billion, 400 million of this was used to create an automobile driving school. As new drivers entered the market having learnt on Toyota vehicles, sales of Toyota vehicles naturally increased. This innovative approach was one of the main key drivers of success in the early days for the Toyota Motor Company.

Criteria Indicating Performance

Before considering the most appropriate evaluation tools for Toyota, it is necessary to determine how Toyota defines success. Naturally, the ultimate goal is to sell more vehicles than its competitors. Therefore, the number of sales relative to its competitors in each geographical location is one of the primary goals and one of the key ways of indicating whether the company has been successful or not. However, by simply measuring the number of sales that Toyota is making, several of the other underlying success drivers would be ignored. One of the main reasons why Toyota was successful was that it invested early and suitably in research and development. Based on this factor, another key performance indicator must naturally be the research and development success. This can be measured through the number of new vehicles produced or the number of new design elements for existing vehicles (Flynn, et al., 1994). Another area which has allowed Toyota to gain such extensive success has been its ability to cut costs, yet still be able to produce high-quality vehicles. A huge focus has been placed on reducing costs and this is clearly one of the closely managed criteria.

Breaking this down even further, costs are saved predominantly during the manufacturing and delivery process (McQuater, et al., 1995). Therefore, in order to establish how successful cost saving has been, one of the performance indicators will be the speed at which a car goes from completion to sale. This is a combination of the delivery mechanism and sales ability and requires an analysis of the overall processes involved, crossing several different functions. This cross-functional performance analysis is particularly difficult to undertake with performance evaluation tools, as each function will naturally be protective about its own performance. Toyota has a superb reputation for build quality and innovative design. This reputation is vitally important to Toyota's overall success and, whilst it has manifested its success in the number of sales, it is also important that it should be evaluated as a standalone issue. Quality management is absolutely critical to a car manufacturer (Tsutsui, 1998). Purchasers of cars demand reliability and good build quality. Reliability can be evaluated in terms of both customer perception and by using more quantitative methods such as the number of cars failing during the initial manufacturer’s warranty process. By measuring all of these factors together, Toyota is able to ensure that each aspect of its success is maintained to a high level, thus ensuring ongoing success.

Priority of Performance Indicators

When evaluating Toyota's performance, it is important to recognise that not all of the performance indicators above rank equally. Whilst many feed into each other, some areas will naturally be seen as more important than others (Doyle, 2000). It is undeniable that the key performance indicator will be the number of cars sold. This will be measured across the various different car sectors, e.g. family cars or larger multi-people vehicles and also across geographical locations. Second to this and critical to the profitability of Toyota is its ability to cut costs at every stage of production and delivery. Based on this, costs associated with production and how these are reduced should also be given considerable importance weighting. The speed at which delivery of the vehicles occurs is also linked to the costs and should be given equal importance to cost reductions in production (Ahire, et al., 1996). Toyota's reputation feeds directly into the number of sales and therefore should be measured, accordingly. However, reputation is a subjective factor and whilst it is important that it is measured, it should be used as a supplementary measurement against the number of set goals and the costs being saved (Paley, 2006). Finally, underlying the success of Toyota is its research and development capability. Therefore, this aspect of the company should also be measured carefully, although it would not be considered a priority alongside sales of cars and cost reduction.

Evaluation Tools

There are of course multiple different evaluation tools which can be put in place to determine how well a company such as Toyota is performing in each of its given performance areas. Previously, we have established the important criteria for Toyota and it is recognised that these are actually very different in both nature and effect. Therefore, it is expected that different evaluation tools will be appropriate for different performance measures (Ghosh & Ariff, 2004). Given the competitive nature of the automobile industry, benchmarking is likely to be one of the most popular evaluation tools. This enables the company to align itself with its competitors, to make sure that is doing better and to identify the areas of weakness with reference to others in the market (Goetsch & Davis, 1997). From a less competitive point of view, in order to deal primarily with the internal issues, auditing can be employed. Auditing can take many forms but, in the case of manufacturing companies, it will commonly be quantitative in nature, for example, the amount of stock being held on a regular basis might be considered. Auditing is particularly appropriate for financial data such as costs and sale prices.

To manufacturing companies such as Toyota, the production system is central and the quality of the system will be equally important. Based on this, strategic quality management evaluation will undoubtedly be an important part of Toyota's evaluation. This will consider the amount of waste during production as well as any quality issues experienced by customers. The former quality issue will have a direct impact on costs and wastage, whereas the latter would have a direct impact on reputation and the number of sales that occur (Rogers, 2001). Self-assessment will also be particularly important, given the size of the organisation. Controlling evaluation is likely to rest in different locations for different areas of the business; therefore, a degree of self-assessment will be necessary on the part of each unit manager. The assessment would include a performance evaluation of the employees within the department as well as performance issues involved across departments (Marks, 2002).

Appropriate Evaluation Tools for Toyota

By considering the various evaluation tools available to Toyota (as contained in the appendix), it is clear to see that due to the variety of different needs and requirements, different evaluation tools may be appropriate for different functions within Toyota as a large organisation and, as such, a degree of uniformity in relation to evaluation must be established. This is particularly true because of the international nature of Toyota, where production takes place on a global scale; each of these units must be working to the same rubric to be successful. The analysis in the appendix reveals that auditing would be the most appropriate evaluation tool for Toyota. This is closely followed by benchmarking and, ideally, Toyota should undertake both auditing and benchmarking to obtain a more rounded view of the position across all sectors. As Toyota undertakes considerable research and development as well as production, auditing offers the opportunity to evaluate both subjective and objective factors. For example, the number of cars produced can be measured through auditing as well as the quality of the research and development. Whilst quality management and self-assessment scored relatively lowly, in comparison to benchmarking, it is likely that they will also form part of the ongoing evaluation within Toyota, despite not being the main focus of the management teams.

Summary

Toyota is the largest and arguably the most successful motor company in the world. Moreover, this has occurred due to a range of innovative and successful strategies including research and quality management. However, in recent years, the automobile market has become increasingly competitive and globalised; therefore, Toyota has come under considerable pressure to maintain its position (Selnow & Crano, 1987). Constant evaluation is needed to ensure that Toyota remains at the forefront of the market. Due to the diverse nature of Toyota's business with expertise in financing, production and research, it is likely the evaluation will take place within each of these departments as well as evaluation on a wider scale. From a broader point of view, however, it has been established that benchmarking and auditing will be the most appropriate valuation tools. Auditing was found to be the singular most useful evaluation tool for Toyota, with benchmarking following closely behind. Auditing allows those in charge of evaluation to draw together both the quantitative data in terms of sales and wastage and the more qualitative data such as reputation and the value of research developments (London, 1999). Toyota’s ability to evaluate and improve on processes, continuously, has ensured that the company remains the largest car manufacturer company in the world. It is undoubted that constant evaluation of this company has been critical to the overall success both in the past and moving forward into the future. 

Appendix

The following matrix looks at six performance criteria for Toyota and ranks the various evaluation tools that may be available for each of the performance factors. By ranking these as high, medium or low and counting out the score, it is possible finally to determine which evaluation tool would be the most appropriate for each performance indicator. It will also reveal which tool, if only one evaluation tool can be selected, would be the most appropriate.

Criteria	Benchmarking	Auditing	Quality Management	Self Evaluation
Number car sales	H	M	M	M
Production costs	L	H	M	M
Production time frame	H	M	L	M
Wastage in production	L	H	H	M
Customer reputation	H	H	M	L
New developments from research and development	M	M	L	M
Total Score	13	15	11	11

High ranking = 3 Mid ranking = 2 Low ranking = 1

 

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