Toyota’s Guiding Principles and Culture

Employees of Toyota Company heard the Toyota Percepts and read for the very forts time on the
6thanniversary of Sakichi death on 30 October 1935. Those people who shaped these principle had
been among the close people of Sakichi during the period when he was alive there rules and
regulation represents the summery of his thinking, values, and ideas. These words still are part of
company’s principle and have maintained their position among all the companies if Toyota Group
They are:
1. Be contributive towards the improvement and wellbeing of the country by working unitedly
irrespective of the position just perform duties with honest and fulfill the assigned task.
2. Be advance of the time by limitless creativity, curiosity and chase the ways of improvement
3. Be Practical and try to avoid thoughtlessness.
4. Be lavish and kind: try to form the environment in which you feel atmosphere like of home
5. Be respectful, and show thankfulness for things in your mind and action
The culture of Toyota Corporation basically based upon the above mentioned points these point act as
a guiding principle to create and farmable the core values for the companies and make the
comfortable environment for employees these are the core values and key principle of Toyota
success, there things express that Toyota mare not only focus on a private and profit making
organization but also try to take care of the country and employees. Concern for the society and
employees is also the responsibility of the organization and every organization is responsible for it
.Motto of Toyota corporation is “Enrich Society through Building Cars” that’s the primary symbol which
shows its dedication towards the development of society. The administrative values of Toyota (Toyota
Motor Publication, 1985) as April 1997 are as follows;

Show respect to the language and essence of the law of every nation and accept as open and fair
corporates happenings to be among the list of good business native of the world

Show your Admiration for every customer and every culture of the world and play your role in social
and economic development by your business activities in different countries of the world

Devote yourselves to provide safe and clean product and enrich the quality of life everywhere in the
world by your activates Provide out of mark products and services that can accomplish the needs of
customer worldwide by crating and evolving advance technologies Form a culture which promote
teamwork and individual creativity of the organization member and give respect to the member of
management and labor for their efforts Find opportunities for growth with the global community by
pioneering new management style To attain long term growth and enjoying the benefits try to work in
partners in field of research and formation to attain stability in profits and by keeping our selves open
for the new and upcoming business partners . kaizen (find a constant way of development and
improvement ) the secret of Toyota success lies in effective management and advance technologies
and constantly find PDCA(plan–do-check-act); it’s a business related system which basically deals
with effective production system, cost control and policy development system so as to work in
different environment, By the formation of suggestion and quality improvement system Toyota engage
employee participation and authorization related system so as to give importance to the employees.
Also it develop a system of quality control to array its morals companywide groups like cost control
committee, customer satisfaction committee

The 2009-11 Toyota vehicle recalls involved three separate but

related recalls of automobiles by Toyota Motor Corporation, which occurred at the end of 2009
and start of 2010. Toyota initiated the recalls, the first two with the assistance of the U.S. National
Highway Traffic Safety Administration (NHTSA), after reports that several vehicles
experienced unintended acceleration. The first recall, on November 2, 2009, was to correct a
possible incursion of an incorrect or out-of-place front driver's side floor mat into the foot
pedal well, which can cause pedal entrapment. The second recall, on January 21, 2010, was
begun after some crashes were shown not to have been caused by floor mat incursion. This
latter defect was identified as a possible mechanical sticking of the accelerator pedal causing
unintended acceleration, referred to as Sticking Accelerator Pedal by Toyota. Following the floor
mat and accelerator pedal recalls, Toyota also issued a separate recall for hybrid anti-lock
brake software in February 2010.

As of January 28, 2010, Toyota had announced recalls of approximately 5.2 million vehicles for
the pedal entrapment/floor mat problem, and an additional 2.3 million vehicles for the accelerator
pedal problem. Approximately 1.7 million vehicles are subject to both.[3] [4] Certain
related Lexus and Pontiac models were also affected.[5][6] The next day, Toyota widened the recall
to include 1.8 million vehicles in Europe and 75,000 in China.[7] By then, the worldwide total
number of cars recalled by Toyota stood at 9 million.[8] Sales of multiple recalled models were
suspended for several weeks as a result of the accelerator pedal recall, [9] with the vehicles
awaiting replacement parts. As of January 2010, 21 deaths were alleged due to the pedal
problem since 2000, but following the January 28 recall, additional NHTSA complaints brought
the alleged total to 37.[10] The number of alleged victims and reported problems sharply increased
following the recall announcements,[11] which were heavily covered by U.S. media,[12] although the
causes of individual reports were difficult to verify.[13][14][15] Government officials, automotive experts,
Toyota, and members of the general public contested the scope of the sudden acceleration issue
and the veracity of victim and problem reports.

On February 8, 2011, the NHTSA, in collaboration with NASA, released its findings into the
investigation on the Toyota drive-by-wire throttle system. After a 10-month search, NASA and
NHTSA scientists found no electronic defect in Toyota vehicles. [27] Driver error or pedal
misapplication was found responsible for most of the incidents.[28] The report ended stating, "Our
conclusion is Toyota's problems were mechanical, not electrical." This included sticking
accelerator pedals, and pedals caught under floor mats. [29]
However, on October 24, 2013, a jury ruled against Toyota and found that unintended
acceleration could have been caused due to deficiencies in the drive-by-wire throttle system or
Electronic Throttle Control System (ETCS). Michael Barr of the Barr Group testified that NASA
had not been able to complete its examination of Toyota's ETCS and that Toyota did not follow
best practices for real time life critical software, and that a single bit flip which can be caused by
cosmic rays could cause unintended acceleration. As well, the run-time stack of the real-time
operating system was not large enough and that it was possible for the stack to grow large
enough to overwrite data that could cause unintended acceleration.[30][31] As a result, Toyota has
entered into settlement talks with its plaintiffs.

Recall timeline[edit]

 Sep 26, 2007 – US: 55,000 Toyota Camry and ES 350 cars in "all-weather" floor mat
recall.[33]

 Nov 02, 2009 – US: 3.8 million Toyota and Lexus vehicles again recalled due to floor mat
problem, this time for all driver's side mats.[5]

 Nov 26, 2009 – US: floor mat recall amended to include brake override[4] and increased to
4.2 million vehicles.[citation needed]

 Jan 21, 2010 – US: 2.3 million Toyota vehicles recalled due to faulty accelerator
pedals[6] (of those, 2.1 million already involved in floor mat recall).[3]

 Jan 27, 2010 – US: 1.1 million Toyotas added to amended floor mat recall. [34]

 Jan 29, 2010 – Europe, China: 1.8 million Toyotas added to faulty accelerator pedal
recall.[7]
 Feb 08, 2010 – Worldwide: 436,000 hybrid vehicles in brake recall following 200 reports
of Prius brake glitches.[2]

 Feb 08, 2010 – US: 7,300 model year 2010 Camry vehicles recalled over potential brake
tube problems.[35]

 Feb 12, 2010 – US: 8,000 MY 2010 4WD Tacoma pick-up trucks recalled over concerns
about possible defective front drive shafts.[36]

 Apr 16, 2010 – US: 600,000 MY 1998–2010 Toyota Sienna for possible corrosion of
spare tire carrier cable.[37]

 Apr 19, 2010 – World: 21,000 MY 2010 Toyota Land Cruiser Prado and 13,000 Lexus GX
460 SUV's recalled to reprogram the stability control system. [38][39]

 Apr 28, 2010 – US: 50,000 MY 2003 Toyota Sequoia recalled to reprogram the stability
control system.[40]

 May 21, 2010 – Japan: 4,509, US: 7,000 MY 2010 LS for steering system software
update[41]

 July 5, 2010 – World: 270,000 Crown and Lexus models for valve springs with potential
production issue.[42]

 July 29, 2010 – US: 412,000 Avalons and LX 470s for replacement of steering
column components.[43]

 August 28, 2010 – US & Canada: approximately 1.13 million Toyota Corolla and Toyota
Matrix vehicles produced between 2005 and 2008 for Engine Control Modules (ECM) that
may have been improperly manufactured.[44]

 February 8, 2011 – US: NASA and NHTSA inquiry reveals that there were no electronic
faults in Toyota cars that would have caused acceleration issues. However, accelerator pedal
entrapments remains a problem.[45]

 February 22, 2011 – US: Toyota recalls an additional 2.17 million vehicles for accelerator
pedals that become trapped on floor hardware.
2012[edit]
In October 2012, Toyota announced a recall of 7.43 million vehicles worldwide to fix
malfunctioning power window switches, the largest recall since that of Ford Motor Company in
1996. The move came after a series of recalls between 2009 and 2011 in which it pulled back
around 10 million cars amidst claims of faulty mechanics.[50] In March 2014, Toyota agreed to pay
a fine of US$1.2 billion for concealing information and misleading the public about the safety
issues behind the recalls on Toyota and Lexus vehicles affected by unintended acceleration.
Toyota never agreed to be at fault for the problem.

2014[edit]
In early November 2014, Toyota USA enlisted a recall involving defective inflaters and propellant
devices that may deploy improperly in the event of a crash, shooting metal fragments into vehicle
occupants. More than 7 million vehicles are potentially affected in the United States. This recall
only affects vehicles equipped with Takata airbags released after the year 2000 in North America.
The airbags were manufactured by Takata automotive manufacturing. Toyota is offering a free
repair to all affected vehicles worldwide.[51] The fault in the Takata air bags also affected other
North American automobile manufacturers.

2018[edit]
In December 2018, Toyota USA announced a recall of Toyota and Lexus vehicles with Takata
airbags that had previously been replaced by the company. The recall affects specific Toyota
Corollas, Sequoias, Tundras and Lexus vehicles made between 2002-2005. This recall was
announced one year ahead of the initially scheduled recall in December of 2019.

(Reuters) - Toyota Motor Corp (7203.T) said on

Wednesday it is advancing by a year plans to replace
Takata airbags in about 65,000 Toyota and Lexus vehicles
in the United States it had previously replaced.
The Japanese carmaker's U.S. subsidiary said the recall is
being announced a year ahead of the December 2019
timeline and would involve replacing Takata airbags that it
previously recalled and replaced, with non-Takata airbags
at no cost.(toyota.us/2PxWSZZ)
Takata and its U.S. entity TK Holdings Inc filed for
bankruptcy in June last year after recalling more than 100
million of its air bag inflators worldwide as they could
inflate with too much force and spray metal fragments.

The recall announced on Wednesday affects certain Toyota

Corolla, Sequoia, Tundra and Lexus vehicles which were
made between 2002 and 2005.

1. A brief historic overview

The story of the Toyota Motor Corporation began in September 1933 when Toyoda
Automatic Loom, a leading manufacturer of automatic looms, created a new division
devoted to the production of automobiles under the direction of the founder’s son,
Kiichiro Toyoda. The reason for this was that after having visited the USA in 1929,
Kiichiro Toyoda was so excited and impressed by the upcoming motorization that he
started to develop prototypes of passenger cars and freight vehicles by himself.
Finally, in the year 1937, the Toyota Motors Industry Co. Ltd. was founded as an
independent subsidiary of Toyoda Automatic Loom. [2] During the pacific war, the
company mainly produced commercial vehicles for the Japanese military.
Nevertheless, although initially being a prosperous company recording high annual
growth rates, Japan’s defeat in World War II. brought the flourishing business to an
abrupt end. Just like for the country’s overall industrial sector, overcoming the ill
effects of the postwar period – with the war having destroyed almost the whole
national economy – was not an easy process for the Japanese car makers as well.
Since the early 1960s, however, the country’s auto industry started to grow
constantly, in particular because car manufacturers belonging to the Japanese auto
industry were commissioned to supply army trucks to South Korea by the U.S.
Federal Government during the Korean War between 1950 and 1953. This
commission was an important precondition for the industry’s recovery, and in
particular for the quick revival of the Toyota Motor Corporation. [3]

2. Toyota – The company today

As mentioned before, the Toyota Motor Corporation today is the largest automobile
manufacturer of the world and also Japan’s largest corporation. [4] Besides its
activities in the area of automobile manufacturing – which account for more than
ninety percent of the company’s overall business – Toyota also operates in the areas
of industrial trucks, financial services, prefabricated houses, boat engines, IT and
telecommunications as well as in biotechnology and forestry (Becker, 2006).

Over the last six decades, the company was able to increase its production of
automobiles under the brand of Toyota from 155.000 in 1960 to 9.23 million cars in
the year 2008. [5]

During the 1980s, Toyota clearly turned away from its traditional export strategy,
starting to build manufacturing plants and R&D centers all over the world. Since that
time, production and sales increases have mainly taken place outside of Japan.
Today, Toyota follows a strategy of strong regional diversification with distribution
channels in more than 140 countries and models and distribution channels differing
from country to country. At present, Toyota’s key market is North America,
representing more than thirty percent of total sales (see figure 1).

(Figure 1: Toyota Sales by Region; Own illustration according to illustration source A)

III. Analysing Toyota’s recipe for success – The Toyota Way

The fundamental reason for Toyota’s success in the global marketplace lies in the so
called “Toyota way”. The Toyota Way is not only about technology and efficiency, it is
about “Doing the right thing for the company, its employees, the customer and the
society as a whole” (Liker, 2004).

In other words, the incredible success of the Toyota way is a direct result of
operational excellence (Liker, 2004). Toyota has turned operational excellence into a
strategic weapon. This operational excellence is only in part based on tools and
quality improvement methods made famous by Toyota in the manufacturing world,
such as JIT, Kaizen, and one-piece-flow. Although such techniques helped spawn the
“lean manufacturing” revolution, tools and techniques are no secret weapon for
transforming a business (Liker, 2004). Toyota’s continued success at implementing
this tools stems from a deeper business philosophy based on its understanding of
people and human motivation. Its success is ultimately based on its ability to
cultivate leadership, teams and culture, to devise strategy, to build supplier
relationships, and to maintain a learning organization (Liker, 2004). In summary, the
Toyota way can be described by using the following 4 P model – Philosophy, Process,
People & Partners, and Problem solving (see figure 2). These four points will be
analyzed in detail in the following chapters.

(Figure 2: A “4 P” model of the Toyota Way; Own illustration according to illustration

source B)

1. Key success factors – The Toyota philosophy

“A corporate philosophy is the umbrella policy that guides all of the decisions and
activities of the organization”

(Fred J. Borch, former CEO of General Electric) [6]

One of the fundamental reasons for Toyota being so successful in the global
marketplace lies in its corporate philosophy. The corporate philosophy of a company
can be defined as the set of rules and attitudes that govern the use of the companies
resources [7] . In the Japanese culture, long-term orientation and long-term thinking
plays an important role. This is shown in a very impressive way by Konosuke
Matsushita’s famous 250-year plan for the growth of his company, Matsushita
Electric Industrial Company Ltd., which he expressed in the year 1932. [8]

At Toyota Motor Corporation, this basically means that management decisions are
based on a long-term philosophy, even at the expense of short-term financial goals.
To be more specific, the main ideas of Toyota’s philosophy are to base management
decisions on a “philosophical sense of purpose”, to think long term, to have a
process for solving problems, to add value to the organization by developing its
people, and to recognize that continuously solving root problems drives
organizational learning (Liker, 2004).

2. Key success factors – Processes

Besides this long-term oriented corporate philosophy, another success factor that
enabled Toyota to become the world’s most successful automobile company is its
famous manufacturing method, the so called Toyota Production System (TPS). Both
elements, Toyota’s corporate philosophy and its special manufacturing method, are
the double helix of Toyota’s DNA. They define its management style and what is
unique about the company (Liker, 2004). Nevertheless, one important question still
remains: What makes the TPS so unique?
2.1 The Toyota Production System (TPS)
The evolution of the Toyota production system approach can be traced to the period
immediately following the second world war when the economic outlook was
uncertain and human, natural and capital resources were in limited supply. Against
this background, the most important objective of the Toyota System has been to
increase production efficiency by consistenly and thoroughly eliminating waste
(Ohno, 1988). This concept developed between 1948 and 1975 by Toyota’s former
president Toyoda Kiichiro and later by Ohno Taiichi and Eiji Toyoda represents a
highly efficient production system that is similar to that of Henry Ford several
decades earlier, although Toyota’s approach to both product development and
distribution proved to be much more consumer-friendly and market-driven.

The main objective of TPS is to produce goods synchronously to customer

requirements, thus designing out overburden (muri) and inconsistency (mura) and
eliminating waste (muda) for instance caused by overproduction, unnecessary
transports and waiting times (Ohno, 1988). In order to achieve these goals, the
Toyota Production System makes use of five different methods that are illustrated in
figure 3.

(Figure 3: The Toyota Production System; Own illustration according to illustration

source C)

2.1.1 Synchronization and standardization of processes –

Lean manufacturing
One of the greatest advantages of TPS is its strong focus on lean production. Lean
production is aimed at the elimination of waste in any area of production including
customer relations, product design, supplier networks and factory management. Its
goal is to incorporate less human effort, less inventory, less time to develop
products, and less space to become highly responsive to customer demand while
producing top quality products in the most efficient and economical manner possible
(Ohno, 1988).

In order to achieve these goals, Toyota pioneered and implemented several highly
efficient strategies. For instance, during the 1970s Toyota invented Just-in-Time (JIT),
an inventory strategy that strives to improve a businesses’s return on investment by
reducing in-process inventory and associated carrying costs, following the simple
philosophy that inventory is waste. To meet its objectives, one of the primary tools of
a JIT system are signals (jap. Kanban) between different points in the process, which
tell production when to make the next part. Such signals maintain an orderly and
efficient flow of materials throughout the entire manufacturing process, improving a
manufacturing organization’s return on investment, as well as quality and efficiency.
Closely linked to Toyota’s JIT principle is the company’s outstanding supply chain
management, as the high efficiency and effectiveness of a JIT inventory system is
heavily dependent upon the smooth co-ordination of a company’s supplier network.
Toyota as well as other Japanese car manufacturers are able to ensure such a smooth
co-ordination and close and trustful cooperation with their suppliers through the so
called keiretsu. A keiretsu is a traditional Japanese institution and can be defined as a
set of companies with interlooking business relationships and shareholdings. In
general, there are three different types of keiretsu (Miwa and Ramseyer, 2002):

Kigyo shudan – Horizontally diversified business groups

Seisan keiretsu – Vertical manufacturing networks

Ryutsu keiretsu – Vertical distribution networks

Today, Toyota is widely considered the biggest of the vertically-integrated keiretsu

groups, with companies like the Denso Corporation – the world’s second largest
automotive components manufacturer – as well as 300 other component suppliers
being more or less directly linked to the company.

In addition to JIT and an outstanding supply chain management, the high efficiency
of Toyota’s manufacturing plants is also due to a high level of standardization. For
Toyota, standardized tasks and processes are the foundation for continuous
improvement and employee empowerment. In this context, one of the most
important principles for Toyota is to visualize standards to ensure that no problems
are hidden. Included in this principle is the so called 5S Program comprising five
steps that are used to make all work spaces efficient and productive, help people
share work stations, reduce time looking for needed tools and improve the work
environment (see figure 4).

(Figure 4: The 5S Program; Own illustration according to illustration source D)

2.1.2 Avoiding errors

One of the most important aspects when working with a minimum stock of materials
and JIT inventory systems is to ensure that each part entering the next step of the
production process meets the highest possible quality standards. To meet this
requirement, it is not enough to take samples. In fact, all employees working in
production and logistics must be trained and sensibilized for this set of problems.

At Toyota, this is ensured by the so called Total Quality Management (TQM)

approach. TQM is an integral management concept coined in the 1940s by W.
Edwards Deming, an American statistician, professor and consultant. It can be
defined as a set of management practices throughout the organization, geared to
ensure the organization consistently meets or exceeds customer requirements. TQM
places strong focus on process measurement and controls as means of continuous
improvement. One of the principal aims of TQM is to limit errors to 1 per 1 million
units produced (Hakes, 1994).

2.1.3 Improvement of the production lines

Another fundamentally important pre-condition for a highly efficient and effective
production is the continuous improvement of the production line and the facilities.
Only if the machinery and the equipment are at the forefront of technology and are
working reliably without any defects and failures, it can be ensured that the machine
uptime is predictable and the process capability is sustained, avoiding that the
process must keep extra stocks to buffer against any uncertainties and that the flow
through the process will be interrupted.

At Toyota, this in ensured through the application of Total Productive Maintenance

(TPM). TPM is a proactive approach that essentially aims to prevent any kind of slack
before occurrence and has been the first methodology Toyota used to improve its
global position in the 1950s. According to the motto “zero error, zero work-related
accident, and zero loss”, in TPM the machine operators perform much, and
sometimes all, of the routine maintenance tasks themselves. This auto-maintenance
ensures appropriate and effective efforts are expended since the machine is wholly
the domain of one person or team (Nakajima, 1995).

2.1.4 Employee training and qualification

At Toyota’s production factories, the workpeople are seen as the most important
factor within the whole production process. Toyota has understood better than
anybody else that investing into employee training and qualification is the critical
success factor in the battle for quality and costs. According to the understanding that
continuous process improvement means continuous employee qualification, Toyota
for instance offers trainings for its assembly-line workers in its own training centers
to ensure that they are able to meet the company’s standards before they start
working at the actual assembly line. This procedure is aimed at avoiding frustration
among the employees due to excessive performance requirements, thus
guaranteeing a high level of commitment and motivation among the workforce.

2.1.5 Continuous improvement through Kaizen

Finally, the Toyota Production System is famous for the strict implementation of a
continuous improvement process (CIP) referred to as Kaizen (jap. “improvement” or
“change for the better”). In general, the term Kaizen describes the philosophy or the
practices that focus upon continuous improvement of processes in manufacturing,
engineering, supporting business processes, and management. Its core principle is
the self reflection of processes through intensive feedback with the purpose of
identifying, reducing and eliminating suboptimal processes in order to raise overall
efficiency. In addition, the emphasis of continuous improvement is on incremental,
continuous steps rather than giant leaps.

Used in the context of the Toyota Production System, CIP has some sort of workshop
character, describing an environment where all individuals – from the CEO to the
individual assembly-line worker – work to improve all functions within manufacturing
and all related processes. In addition, of fundamental importance is senior
management’s willingness to implement the findings of the CIP as well as to
empower all employees to enable them to implement suggestions for improvement
by themselves (Liker, 2004).

In summary, the outcome of Toyota’s remarkable production system, based on a

careful analysis of its own resources and competencies, in addition to the strict
orchestration of these resources and competencies over time, can be clearly seen in
the measures of productivity for lean versus non-lean automotive companies, as
shown in figure 5.

(Figure 5: Output lean/ non-lean automobile manufacturers; Own illustration

according to illustration source E)

2.2 The concept of re-engineering

In addition to the famous Toyota Production System, the concept of re-engineering
has been another major factor for the success of Toyota. Re-engineering can be
defined as the process of the fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in critical measures of
performance such as cost, service, and speed (Hammer and Champy, 1993). It
combines a strategy of promoting business innovation with a strategy of making
major improvements to business processes so that a company can become a much
stronger and more successful competitor in the marketplace.

In the case of Toyota, one must just consider a Toyota model which is newly
introduced into the market, but fails to impress the market. In this case, Toyota’s next
strategic step will be to re-engineer the model, which means completely altering the
failed model using the same production facility, learning from the mistakes they
made in the past. This method is for instance not practiced at General Motors and
Ford. Once a GM or Ford model fails to reach market expectations, the whole
manufacturing facility for producing the model will be scrapped and the employees
are often pushed out of the company. However, this approach results in loosing the
knowledge gained at great costs.

3. Toyota’s key success factors – People and Partners

Besides its long-term corporate philosophy and state-of-the-art processes like TPS
and the concept of re-engineering, another major success factor of Toyota is its
highly effective and efficient human resource management system (Liker, 2004). For
Toyota, human resources is the cornerstone for a high level of employee loyalty and
commitment to quality. The underlying principle is that a workplace with high morale
and a high level of job satisfaction is more likely to produce reliable, high-quality
products at affordable prices.

In contrast to other car manufacturers like GM or Ford, Toyota has managed to

create an organizational culture that strengthens employee motivation and
encourages their participation, which is an essential precondition for the functioning
of the TPS. For instance, in Toyota factories group activities are promoted among the
shop-floor team members. In addition, the knowledge base of all employees is used
to improve equipment reliability and productivity, thereby lowering maintenance and
operating costs.

In general, Toyota’s human resource management aims at growing leaders who live
the Toyota philosophy and to respect, develop and challenge its people, teams and
partners (e.g. suppliers).

4. Toyota’s key success factors – Problem Solving

Finally, the top of the pyramid of Toyota’s success is characterized by the willingness
for problem solving and continuous improvement and learning which is deeply-
rooted in the Toyota culture (Liker, 2004). And this does not only imply the process
of continual organizational learning through Kaizen as mentioned before under point
2.1.5. In fact, this also results in the belief that one always has to see for himself in
order to thoroughly understand the situation (jap. Genchi Genbutsu), and that
making decisions slowly by consensus, thoroughly considering all options, is the key
for sustainable problem solving and long-term business success.

IV. Identifying Toyota’s competitive advantages in the

automotive industry

1. The VRIO framework

In the previous remarks, the aim was to take a closer look at potential factors that
enable Toyota to be as successful in the global automotive industry by analyzing
several famous and much-admired aspects of the company’s operations.
Nevertheless, the question still remains whether these described factors can really be
identified as competitive advantages and can therefor be seen as the underlying
drivers for Toyota’s long-term success.

In order to answer this question, the VRIO framework, an internal tool of analysis in
the context of businesses, can be applied. VRIO is an acronym for a four question
framework that can be asked about a resource or capability to determine its
competitive potential: The question of value, the question of rarity, the question of
imitability, and the question of organization (Barney and Delwyn, 2007). In this
context, valuable means that the resource or capability enables a company to
implement strategies that improve its efficiency and effectiveness. Rare means that
the resource or capability is valuable and not typical for the other competitors in the
industry. The question of imitability asks whether the resource or capability is difficult
to imitate, and whether there will be significant cost disadvantages to a company
trying to obtain, develop, or duplicate it. Finally, the question of organization means
whether or not a company is organized, ready, and able to exploit the resource or
capability.

Considering this theoretical background of the VRIO framework and the fact that a
competitive advantage occurs when an organization acquires or develops an
attribute or combination of attributes that allows it to outperform its competitors, it
can be concluded that Toyota’s philosophy, its unique continuous improvement
process as well as its highly effective and efficient HR management system and the
deeply-rooted problem solving culture are truly sustained competitive advantages
and for that reason essentially contribute to Toyota’s leading position in the global
automotive industry (see illustration provided by figure 6).

(Figure 6: The VRIO Framework; Own illustration according to illustration source F)

2. Conclusions for Toyota’s Corporate Strategy

Based on its strong resources and capabilities, Toyota has managed to become the
most efficient automobile manufacturer in the world, with the highest overall
productivity. In addition, these competitive advantages allowed Toyota as one of
only very few automobile manufacturers to successfully implement a strategy that
may in fact be the true basis for Toyota’s global success: The strategy of the best-
cost provider.

According to Michael Porter, a company can choose one of four generic business
strategies that can be adopted in order to outperform rivals within an industry: The
overall low-cost provider strategy, a broad differentiation strategy, a focused low-
cost strategy, and the focused differentiation strategy. In addition, according to the
prevailing view, companies have a fifth strategic option by choosing the so-called
best-cost provider strategy (Thompson, Strickland and Gamble, 2007) (see figure 7).

(Figure 7: Generic Competitive Strategies; Own illustration according to illustration

source G)

The five strategies relate to the extent to which the scope of a businesses’ activities
are narrow versus broad and the extent to which a business seeks to differentiate its
products. In this context, the differentiation and cost leadership strategies seek
competitive advantage in a broad range of market or industry segments. By contrast,
the differentiation focus and cost focus strategies are adopted in a narrow market or
industry. Finally, the best-cost provider strategy strives to give customers more value
for the money by combining an emphasis on low cost with an emphasis on upscale
differentiation (Thompson, Strickland and Gamble, 2007).

In this context, the Toyota Motor Corporation has successfully managed to combine
a cost leadership and a differentiation strategy, creating superior value by meeting or
beating customer expectations on product attributes and beating their price
expectations. As mentioned and analysed before, Toyota’s production is reportedly
the most efficient in the world, and that efficiency allows the company to follow a
strict low cost strategy in the global car industry. At the same time, over the last
decades Toyota has also started to differentiate its cars from those of rivals on the
basis of superior design and quality. This superiority allows the company to charge a
premium price for many of its popular models, with the Toyota Prius representing
only one of many other examples.

V. Final Conclusions

Although the Toyota Motor Corporation and its incredible success story over the past
seventy years have very often been subject to excited discussions and analyses in the
press and in academic literature, at the present time the company rather makes
negative headlines. Having suffered from the impacts of the global financial and
economic crisis, in May 2009 the company reported an operating loss of 461 billion
Yen (4.7 billion US dollars) for the fiscal year 2009 that ended 31 March 2009,
expecting a further operating loss of 850 billion Yen (8.6 billion US dollars) for fiscal
year 2010 (ending 31 March 2010). In addition, Toyota reported that its consolidated
car sales in fiscal year 2009 totaled 7.57 million units, a decrease of 1.34 million units
(or minus 17.7 percent) from the last fiscal year. [9]

However, besides these financial challenges, Toyota recently also faces severe quality
problems: In January 2010, the company had to recall more than 2.3 million cars in
the USA and about 1.8 million cars in Europe due to problems with locked
accelerator pedals. In addition, the US-based production and sale of popular Toyota
models like the Auris, Avensis, the Corolla and the Camry had to be stopped
temporarily. According to estimations, the recall might cost Toyota about 150 million
Euro, not including potential punitive damages as a consequence of the present
flood of lawsuits, which finally may cause costs amounting up to three billion US
dollars. Furthermore, in February 2010 Toyota had to announce another global recall
of more than 437.000 units of its Prius model due to technical difficulties with the
breaking system. Without doubt, this will cause additional costs and will further
damage Toyota’s tarnished quality image.

Some experts say that one reason for Toyota’s present problems might be that the
company is growing more quickly than its ability to transplant its unique culture to
foreign markets. According to these experts, Toyota, which has expanded into a vast
international group within the last two decades, often simply exports its
manufacuring and management methods to its 200.000 workers at 27 plants
overseas without always taking the time to explain the ideas behind them. In this
context, Hirofumi Yoko, a former Toyota accountant who is now an auto analyst at
CSM Worldwide in Tokyo, stated: “If Toyota can’t infuse its philosophy and its
obsession for craftmanship into its workers all over the globe, these quality problems
will keep happening.” [10]

Nevertheless, besides these present problems, Toyota is still clearly the epitome of an
automotive success story. Reacting to the recent problems, the company has
established additional global training centers for its workforce and managerial staff
to ensure that the “Toyota Culture” is lived in the same way all over the world.