Knowledge Management &

Building Relationships in B2B

Network
Toyota Case

Project Report - Business to

Business

Group – 2, Section – B

Debanik Basu
Gaurav Gupta
Julie Pages
Nitin Gupta
Santosh Matala
Contents

Toyota Motors........................................................................................................ 3
Toyota’s Value Chain.............................................................................................3
Overcoming the knowledge Sharing Dilemmas: Toyota Way.................................4
Encouraging Suppliers........................................................................................5
Addressing free-rider problems...........................................................................5
Creation of network identity...............................................................................6
........................................................................................................................... 6
Kyohokai / Suppliers Association.........................................................................6
Consulting Teams / Problem Solving Teams.......................................................7
Jishuken................................................................................................................. 8
Activities of “Jishuken” :..................................................................................8
Plant Development Activity (PDA).......................................................................9
Shukko................................................................................................................. 10
Network System...................................................................................................10
Maximizing Efficiency of Knowledge Transfer......................................................11
Toyota’s US Knowledge Sharing Network............................................................11
Phase 1: Developing Weak Ties:....................................................................12
Phase 2: Developing strong bilateral ties:.....................................................12
Phase 3: Developing strong ties among suppliers.........................................12
Conclusion............................................................................................................14
References .......................................................................................................... 15
Toyota Motors
Toyota Motors is the world’s largest automaker in terms of revenues,
with annual revenues being more than $250 billion. Toyota is
headquartered in Aichi, Nagoya and in Tokyo in Japan. Toyota’s history
dates early 20th century when it started as a loom and sewing machine
producer, but added car manufacturing unit only in 1933. Today, this
company ranks 5th in the list of Fortune 500 companies. Toyota Motors,
a department of Toyota industries, in 1936 created its first passenger
car the Toyota AA. The company has currently 522 subsidiaries world
over. Toyota employs approximately 316,000 people around the world.
Toyota also provides financial services through Toyota Financial
Services & also creates robots. Toyota Industries and Finance divisions
form the bulk of the Toyota Group, which makes it one of the largest
conglomerates in the world.

Toyota’s Value Chain

Toyota developed & implemented Toyota Production System or TPS.
TPS refers to an integrated socio-technical system that comprises
Toyota's management philosophy and practices.
 Toyota’s Value chain (source : 100ventures.com)

In the Kaizen strategy which is followed by the company, it tries to

empower employee through mechanisms such as the system and quality
control (QC) circles. Toyota's management philosophy has been reflected
in the terms like "Lean Manufacturing" and "Just In Time", which has
been adopted world over.

Overcoming the knowledge Sharing Dilemmas: Toyota

Way

There is a big challenge to any value chain for an auto maker. Challenge
for the company lies in knowledge sharing with suppliers and other
players in the value chain. But it has been seen that knowledge diffusion
occurring at Toyota Motors has been much more successful than its
competing auto makers. Toyota’s has been able to effectively create and
manage network-level knowledge-sharing processes at least partially
explains the relative productivity advantages enjoyed by Toyota and its
suppliers. The evidence is there that suppliers do learn more quickly
after participating in Toyota’s knowledge-sharing network.

Lets analyse how Toyota managed its knowledge sharing dilemmas.

Encouraging Suppliers

Toyota encouraged suppliers to openly participate in sharing knowledge,

as it believed collective learning is superior. And to encourage suppliers
to participate and openly share knowledge, Toyota has heavily
subsidized the network (with knowledge and resources) during the early
stages of formation to ensure that suppliers realize substantial benefits
from participation. Suppliers are motivated to participate because they
quickly learn that participating in the collective learning processes is
vastly superior to trying to isolate their proprietary knowledge. Toyota
has also introduced a number of network-level knowledge sharing
processes that have, over time, helped create a strong ‘identity’ for the
network.

Addressing free-rider problems

Network rules were setup so that suppliers can access knowledge once
they agree to share their knowledge. In such network rules, company
also included severe consequences for violating the rules, so to reduce
such violations and bring in more discipline. Finally, to ensure that the
network is efficient at tacit knowledge transfers, Toyota has created a
highly interconnected, strong tie network with a variety of processes that
facilitate knowledge transfers. The network has multiple pathways
among members (effectively eliminating most structural holes). Toyota’s
strong tie network is well suited for the diffusion (exploitation) of
Toyota’s production know-how (e.g., the Toyota production system) as
well as the existing know-how that resides within its suppliers.
Creation of network identity

Toyota realized that if a network can create a shared identity among

members, then that shared identity can lower the costs of sharing
knowledge within the network. Also, the diversity of knowledge that
resides within a network is much greater than that which resides in a
single firm. Company realized that if the network can get its members to
‘cooperate in a social community’ it will create learning opportunities far
superior to firms that do not reside within such a network. Toyota’s
network is effective at knowledge sharing, in part, because a strong
network ‘identity’ has emerged and the network has established rules
(network norms) that support coordination, communication, and learning.
In Japan, Toyota’s network is known as the ‘Toyota Group’ and Toyota
openly promotes a philosophy within the Toyota Group called
‘coexistence and co prosperity’ (Kyoson kyoei in Japanese). Toyota has
also promoted this philosophy as a core value held by Toyota in a
manual (called ‘Selling to Toyota’) that they created to help U.S.
suppliers learn how to best work with Toyota.

Kyohokai / Suppliers Association

Philosophy and Belief - Toyota promotes philosophy in network –
coexistence and co-prosperity (Kyoson kyoei in Japanese) – US context.
Quality Cars require Quality Suppliers.

Kyohokai – Kyohokai is the supplier’s region. It was first established

in 1943 to promote “mutual friendship” and “exchange of technical
information”. Later it was extended to “Mutual development and training”
among its members. Kyohokai is divided into 3 regional associations –
based on geographical proximity. This association conducts general
meetings every month – Sharing explicit knowledge on topics (cost,
quality, safety etc).

Quality Committee - Number of initiatives are taken to increase the

amount of knowledge in the network to promote product quality. Regular
Committee is set up, which picks up a theme (based on Suppliers inputs)
for the year. These committees then meet six times and and discussions
are based on the theme.

Apart from the above points, more programs are held to enhance the
transfer of both explicit and implicit knowledge. Basic quality Training
programs are held for suppliers. These also include excellent plant tours.
Annual quality management conference are also held which includes
lectures and case discussions- 2 plant managers’ cases, 2 supervisors’
cases, and 2 quality circles’ cases.

Toyota’s replicated kyohokai in the USA in 1989 - Setup Bluegrass

Automotive Manufacturers Association (BAMA)

Consulting Teams / Problem Solving Teams

Toyota established its Operations Management Consulting Division
(OMCD) in the mid- 1960s. Main objective for this division is solve
operational problems (Toyota & suppliers). OMCD is the organizational
unit within Toyota with responsibility to acquire, store, and diffuse
valuable production knowledge that resides within Toyota’s production
network. This provides direct “on-site” free assistance to all members
suppliers to sort out problems. Average No of visits – 4.2 per year. The
U.S. version of OMCD is setup in 1992 (TSSC – Toyota Supplier Support
Center). Problems faced in transferring tacit knowledge can be the cultural
and management issues and consultancy projects are time consuming
and resource intensive.

 Benefits through TSSC

 Supplier started learning faster after TSSC

 Inventory reduction of 75%

 Productivity improvement by 124%

 Problem solving teams from TSSC / QAD from Toyota

 Fix quality problems and enable supplier-supplier KS

Jishuken
OMCD organized key suppliers into voluntary study groups (a.k.a
“jishuken”). Each group had similar production processes. Members in
each group to assist each other with productivity and quality
improvements. Group formation is based on geographic proximity,
competition and relations with Toyota. Groups usually reorganized every
3 years to maintain diversity of ideas.

Activities of “Jishuken” :
 Determine central theme for the year

 Visit each other’s plants as consultants along with an OMCD

member

 Consulting Phases

 Preliminary inspection

 Diagnosis and experimentation

  Presentation

 Follow up/evaluation

 Annual meeting of all “jishuken” groups to share knowledge

Plant Development Activity (PDA)

Plant development Activity or PDA was established in 1994 to replicate
“jishuken” model in US. Initially it was formed with 3 groups with 11
suppliers in each group, but later on 15 more suppliers were added to it.
Although , it led to problems with experienced suppliers getting frustrated
with lacking skill and knowledge base of inexperienced suppliers. To
manage that, Toyota then had to reorganize them into 4 groups based on
skill set : -

 Orange (High skills; high experience)

 Blue (High skill; medium experience)

 Green (Medium skill; medium experience)

 Purple (Low skill; low experience)

There were a certain criteria to which suppliers must meet in order to be

eligble for membership of PDA. Supplier must be member of Bluegrass
Automotive Manufacturer’s Association (BAMA) for atleast 1 year. This is
to ensure that suppliers are assimilated into BAMA. It would also ensure a
commitment from top management. Primary aim was to create more of a
learning team rather than “jishuken” which are consulting teams.
Shukko
Shukko is the inter-firm employee transfers practice followed by Toyota
and many Japanese firms. There are number of reasons because of which
Toyota favours employing “Shukko”. Some of them are : -

 Helping assemblers maintain control of suppliers

 Opportunity to shed unwanted employees

 Creating network identity

 Transferring knowledge from Toyota to suppliers

 Understand supplier perspective

 Transfers can be permanent or temporary

Network System
Such a network system creates a social community among suppliers. It
facilitates face-to-face interaction, while encouraging knowledge sharing;
also it enables a lower cost of participation and increases value of
participation.

Maximizing Efficiency of Knowledge Transfer

As had been discussed, Toyota employs variety of processes available for

knowledge transfer - Jishuken, Suppliers’ Association etc. Each type of
knowledge (tacit, explicit) is matched with the process (bilateral,
multilateral) for highest efficiency.

Toyota’s US Knowledge Sharing Network

Toyota successfully replicated its knowledge sharing network in US as well

in a course of time. The following steps were taken by it for the same :
Phase 1: Developing Weak Ties:
• Relationships of suppliers with Toyota were new

• No interaction b/w suppliers

• Knowledge Sharing Non-Existent

• Initiated Knowledge Sharing

• Established Suppliers’ Association – expl. Knowldg.

• Created weak social ties among suppliers

• Supplier Motivation – Show commitment to get more business

Phase 2: Developing strong bilateral ties:

• Consultants at Suppliers’ Facilities

• Transferred tacit know-how

• Reciprocal Knowledge Sharing

• Feeling of indebtness and openness within suppliers’ network

• Comfortable with knowledge transfer activities

• Supplier Motivation – Receive Knowledge Transfer from Toyota

Phase 3: Developing strong ties among suppliers

• Divided Suppliers into Small learning teams – Maximize learning

• Subnetworks within network

• Toyota’s control over network – Leadership position

• Supplier Motivation – Rapid knowledge acquisition to be more

competitive
 Evolution of knowledge sharing network

Toyota’s knowledge sharing model who has implementation has been

time consumeing and resource intensive has been highly successful. Main
reasons for its success are :

 Top management commitment

 Nurturing Sharing culture
 Flexibility in decision making
 Building and maintaining high levels of trust
Conclusion

Toyota’s knowledge sharing models successfully solves three dilemmas of

value chain, which are, motivated members to participate and openly
share knowledge, prevented members from free riding and efficiently
transferred both explicit and implicit knowledge. It also shows that firms
can achieve competitive advantage by building strong relationships with
the suppliers and among the suppliers. The shared identity lowers the
costs of communication and establishes explicit and tacit rules of
coordination. Network can be more effective than a firm at the generation,
transfer, and recombination of knowledge – due to greater diversity of
knowledge within a network.
References

• “The knowledge value chain: a pragmatic knowledge

implementation network”, Catherine L. Wang & Pervaiz K. Ahmed,

Emraldinsight

• “Creating and managing a highperformance knowledge-sharing

network: the Toyota case”, Jeffrey H. Dyer and Kentaro Nobeoka,

Strategic Management Journal

• http://en.wikipedia.org/wiki/Toyota

• http://www.1000ventures.com/business_guide/im_value_chain_main.

html

• History of the TPS, Toyota Motor Manufacturing Kentucky Site,

http://www.toyotageorgetown.com