3.1.4 Threat of substitute
Substitutes are moderately strong due to different and less-expensive transportation facilities. The Hybrid Synergy Drive of Toyota is the threat of substitute products. Nissan and Honda have developed the same technologies for their car models. However, lower cost may induce consumers to shift preferences from higher cost of vehicle to another lower cost transportation such as mass transit, motorcycle and public transportation (Gomez-Mejia et al., 2008). The number of substitute product for car is limited because in low pressure on the manufacturers. Within in automobile industry, normal cars cannot substitute the luxury cars, and vice versa.
3.1.5 Intensity of rivalry among firms in an industry
The major players of the American big three: GM, Ford, and Chrysler, while the Japanese big three: Toyota, Honda and Nissan had caused the rivalry of global automotive manufacturing industry much more intense. In automotive industry, it is less price-based competition, but more recently the competition has intensified - rebates, interest free loans and long-term warranties have helped to lure in customers, but they also put pressure on the profit margins for vehicle sales. For example, Malaysia is offering RM5k discount for owners of cars that were more than 10 years old to buy new Proton or Perodua cars (The Star Online). Thus, it maybe will directly affect the sales of Toyota Car in Malaysia market. Generally, competitive rivalry will be high if there is just a little differentiation opportunities, the competitors are nearly the same with each other, and the competitors all have similar strategies (Henry, 2008). For example, in automobile industry, all companies make cars, trucks or SUVs. So, the key to win and keep the customers is to understand their needs and wants for buying something better than competitors do.
4.1 Conclusion
In Conclusion, Toyota is leading the world in auto manufacturing efficiency, but still has to keep going on improvement due to the speed of change in technology and innovations and the strong competitive within automobile industry.
Stage 2- Strategy Formulation
1.1 Strategy Formulation
Strategy formulation technique can be categories into three stage decision making framework as business level strategy, corporate strategy and international strategy and globalization. Strategic formulation is to allow an organization to achieve sustainable competitive advantage. It promotes sound strategic thinking about how to develop the overall competitive strategy for the company (Henry, 2008).
2.1 Business level strategy
Business level strategy defined as separating out and formulating a competitive strategy at the level of the individual business unit, known as strategic business unit (SBU) (Henry,2008). A strategy business unit is a distinct part of an organization which focuses on a specific market for its products and services.
3.1 Generic Competitive Strategies
Competitive advantage is about performing different activities or performing similar activities in different ways. One or more competitive advantages are usually necessary in order to develop a winning strategy and this, in turn, should enable a company to achieve above-average growth and profits (huge Davidson, 1997). There are three generic competitive strategies as suggested by Michael Porter — cost leadership, differentiation and focus. Focus can be either cost focus or differentiation focus.
3.1.1 Overall cost leadership
Business success built on cost leadership requires the business to be able to offer its product or service at lower price than its competitors with a good quality of the product (Pearce ll, J. & Robinson, Jr. R., 2009) and its lowest-cost base still allows it to earn a profits (Henry, 2008). Low-cost producers usually excel at cost reductions and efficiencies. They maximize economies of scale, implement cost-cutting technologies, stress reduction in overhead and in administrative expenses, and use volume sales techniques to propel themselves up the earning curve (Pearce ll, J. & Robinson, Jr. R., 2009) and obtain the largest share of market so that its cost per unit is the lowest in the industry (Keegan, W. & Green, M., 2008).
- Toyota’s production system is reportedly the most efficient in the world. This efficiency gives Toyota a low cost position within the automobile industry because it has developed considerable skills in efficient supply chain management and low-cost assembly capabilities. Toyota is constantly searching for new suppliers that can provide industry leadership on cost, quality and technology. However, the company will choose only those suppliers that are willing to establish long-term partnerships with Toyota and that have the ability to be successful in such relationship (The Boston Consulting Group) Now, Toyota earns more revenue than the three largest American auto producers, General Motors, Ford, and DaimlerChrylers (Henry, 2008).
3.1.2 Differentiation strategies
A company achieved competitive advantage by seeking to differentiate the company’s product or service offering from rivals’ in a broad market is called differentiation (Keegan, W. & Green, M., 2008). A differentiation strategy requires an industry to continuously invest in the creation of new products or add new features to existing products and the difference must be sufficiently exist in the mind of customers to the extent that they are willing to pay a premium price and may not be a true distinction from competitive products (Henry, 2008). Differentiation provides a defence against competitive rivalry that helps to protect the organization from price competition.
- Toyota has succeeded in combining aspects of styling and image, performance economy and reliability with a very efficient, local supply chain (Doole, I & Lowe, R., 2007). Toyota has differentiated its cars from those of rivals on the basis of superior design and quality. Toyota has this superiority, brand and marketing skills to use a premium pricing policy charge for many of its popular models. For example: Toyota’s Lexus- the pursuit of perfection with luxury brand. (Pearce ll, J. & Robinson, Jr. R., 2009). Thus Toyota seems to be simultaneously pursuing both a low cost and a differentiated business level strategy. By stressing the attribute above other product qualities, the firm attempts to build customer loyalty. Company translates such loyalty into a firm’s ability to charge a premium price for its product. For example: another automobile industry, Porsche automobiles (Pearce ll, J. & Robinson, Jr. R., 2009).
3.1.3 Focus Strategies
Focus strategy occurs when an organization employs either a cost leadership or differentiation strategy but within only a narrow segment of the market (Henry, 2008). The segment may be based on a particular group of customer, lifestyle, geographical markets, or specific product lines (Campbell, et, al., 2002). Porter argues that by focusing on a narrow segment or niche or the market, the organization may be better placed to meet the need s of buyers than competitors who are trying to compete the whole industry.
- For example: a business like Toyota can thus be regarded as having a hybrid strategy which combines elements of differentiation, with price and cost competitiveness. Toyota is the leader in the area has already sold over 600000 hybrids cars. A successful hybrid strategy will be based upon a conscious decision by senior manager to combine differentiation with price and cost control. Under such circumstances a business can be successful.
(‘Hybrid cars’ Financial Times, 21 August 2006.)
- Another example of a business that pursues a focus strategy is Ferrari, which targets the market for high-performance sports cars (Campbell, et, al., 2002).
4.1 Growth strategies
In order an organization to growth, with respect to sales, profits, market share, etc., then it may choose to undertake any number of growth strategies (Chow, I. et, al., 2002) depending on the level of risk they are prepared to countenance, their resources and capabilities, and their management expertise (Henry, 2008). There are four strategies such as market penetration, product development, market development, and diversification.
Ansoff’s growth vector matrix (1965)
- Market penetration: increase market share in its existing markets by using its existing product. The purpose is to want to attract new consumers, and to get existing consumers to increase their usage of product or service.
- Market development: entering new markets with the existing products. It aim is to target new market segments and new geographical areas, or by devising new uses for its product.
- Product development: developing new products to sell in your existing markets to keep competitors on defensive.
- Diversification: developing new products to serve new markets. This involves the greatest of risk. (Henry, 2008)
- Toyota achieved greater market penetration by marketing their cars as fuel-efficient, well-built alternatives to the gas-guzzling, problem-prone American cars, which eventually allowed them and other Japanese companies to win market share away from the Big Three carmakers. Second, Product development in the automobile industry was highly capital intensive and time consuming. Yet, automakers had to keep coming up with new models from time to time. Toyota was also able to identify new opportunities for market development and speed up the development of revolutionary new products to enter into new markets. The results of Toyota’s product development were the creation of Lexus and Scion, brands that both offers a unique lineup of cars and a unique brand philosophy. Scion comes to capture the youth market and Lexus target on the luxury market. Thus, Toyota is a great case study on how a company should develop, identify, and evaluate market opportunities and how to develop the right products and marketing tactics to capture such markets.
Source: (http://lifeinmotion.wordpress.com/2006/12/23/%E2%80%9Ctoyota-developing-strategies-for-growth%E2%80%9D/)
Stage 3- Strategy Implementation
1.1 Implementation
It is always said that the best formulated strategy will fail as it is not implemented correctly (Henry, 2008). Strategy implementation defined as the way a company structures itself in order to execute its strategic plan efficiently and achieve its objective (Alkhafaji, 2003). The more energy must be placed on carefully designing an effective implementation process in the fast growing corporate world organizations (Chow, I. et, al., 2002). Effective strategy implementations need the organization to be sufficiently flexible in its organizational design. Strategies need to be effectively communicated and properly resourced, and the reason for change needs to be understood and properly coordinated with stakeholders inside and outside the organization (Henry, 2008).
2.1 Organizational structures
Organizational structures is concerned with the division of labour into specialized tasks and coordination between these tasks (Henry,2008). Using the wrong structure could result in lost revenue or even complete failure of the company. Mintzberg (2003) points out, greater specialization requires greater coordination. Like example: the Toyota’s competitor, Henry Ford’s T automobile is so successful because of the division of labour along a moving conveyor belt.
2.2.1The Entrepreneurial Structure (Henry, 2008)
- Revolves around the founder of the firm.
- The founder possesses some technical expertise or specific knowledge that is the basis for the organization’s existence.
- The founder of Toyota, Sakichi Toyoda believed in and lived by the three maxims of labor, gratitude and service. He encouraged his subordinates with comments like, "Let's give it a try" and, "Don't be afraid to make mistakes," mottos he himself put into practice. Sakichi Toyoda was an inventor and the founder of Toyoda Automatic Loom Works in 1926. It is one of the world’s leading manufacturers of weaving machinery (Annual Report 2008).
2.2.2The Functional Structure
- As organizations grow, there is a greater need for formal organization and specialization.
- Is appropriate for an organization which produces one or a few related products or services.
- The use of a functional structure promotes efficiency through the specialized division of labour.
- May be organized as production, marketing, personnel, finance
- The organizational structure at that division was functional, Toyota organized:
- Government and Public Affair group (Strategy function though global headquarters)
- Accounting Group (financial capital function)
- Europe & Africa Operation Group
- Product Engineering Group (quality function)
- Customer Services Operation Group (customer services function)
- Manufacturing Group (operation function) (http://www.japancorp.net/Article.Asp?Art_ID=20850)
2.2.3 The division structure
- Organization need to restructure into division as the firm increase its products and services and enter into more markets. (Chow, I., et, al., 2004)
- Maybe organized according to product lines, market, or geographic areas.
- An organizational structure composed of separate business units each of which houses all the functions necessary to produce a specific product for a specific customer
- Market areas: Each kind of Toyota’s customer is served by a self-contained division, such as Toyota division, Lexus division and Scion division. The business division under the divisional organization system allows the better monitoring of various business activities via established the Business Operation Committee that enable the president to meet with the heads of each business division regularly to follow the state of execution of the business policies in each division (Annual report 2008).
2.2.4 The Matrix Structure
- Is an attempt to increase organizational flexibility to meet the needs of a rapid changing environment
- is the most complex of the different organizational structures
(Henry, 2008)
3.1 Strategic Leadership -Leadership and management
3.1.1 Leadership
- Kotter (1990) argues that leadership is concerned with the setting the direction for organizational change.
- It is about producing a vision and developing strategies to realize that vision (Henry, 2008).
- Porter (1996) argues that the leader’s role is to develop strategy and make choices and trade-offs within the organization clear, and to teach others about strategy and help them to acquire the discipline to make choices in their day-to-day activities
- Toyota industries convenes monthly Board of Directors meeting to discuss and resolve important management matters and monitor the execution of the duties by directors. Furthermore, Toyota has established the Management Committee to discuss important matters such as corporation vision, management policies, medium-term business strategies and major investment. These approaches enable precise decision-making and play a key role of leadership in the realization of an agile and efficient management structure. Toyota has been aiming to enrich society through car making. Strong leaders can create a vision which allows themselves and others in the organization to see clearly the steps to take (Kanter, 1983). Its vision is to be a "good corporate citizen," constantly winning the trust and respect of the international community. Continuing in the 21st century, Toyota aim for stable long-term growth, while striving for harmony with people, society and the environment (Annual Report 2008).
3.1.2 Management
- Kotter (1990) argues that management is all about coping with complexity
- Management helps to deal with complexity is planning and budgeting, i.e. the setting of targets or goals for the next quarter or year (Henry, 2008).
- Under Toyota’s Medium-Term Management Plan announced in October 2005, Toyota is targeting an increase in net sales from ¥1,500.0 billion to more than ¥2,000.0 billion and an increase in ordinary income from ¥80,0 billion to ¥140.0 billion for the five-year period ending March 31, 2011. (annual report, 2008)
4.1 Corporate Governance
- The way in which organizations are directed and controlled
- The process by which corporations are made responsive to the rights and wishes of stakeholders: customers, suppliers, employees, government, competitors, local community (Henry, 2008)
- Shleifer and Vishny (1997) determined that corporate governance is concerned with whether investors are getting a return on their investment.
- However, according to Baukol (2002), the role of corporate governance is to guide corporations to achieve corporate and societal responsibilities.
- Toyota is striving to be a company that maintains the trust of society through establish and meticulous implementation of an internal corporate governance structure. Toyota believes that by implementing the Basic Philosophy and earnestly fulfilling their corporate social responsibilities, can enhance the long-term stability of corporate value and maintain society’s trust. Toyota are building an amicable relationship with all stakeholders, starting from shareholders and customers to business partners, local communities and employees. In order to contribute to sustainable development, Toyota believe that management interacting with its stakeholders as described below is of considerable importance, and Toyota will endeavor to build and maintain sound relationships with our stakeholders through open and fair communication. By this, that can respond quickly and flexibility to changes in the business environment. Furthermore, Toyota are bolstering management supervision and emphasizing the timely disclosure of accurate information as part of efforts to upgrade their corporate governance (Annual Report, 2008).
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Appendix
Kiichiro Toyoda, founder of the Toyota Motor Corporation, was born in 1984. His father Sakichi Toyoda becomes the head of the inventor of the automatic loom. Inheriting the spirit of research and creation from his father, Kiichiro devoted his entire life to the manufacturing of car, which was an unknown frontier at that time. After years of hard work, he finally succeeded in completing the A1 prototype vehicle in 1935. That was the beginning of the history of the Toyota Motor Corporation.
Toyota Motor Co. Ltd was incorporated in 1937 as a spin-off from Toyoda Automatic Loom Works. Today, Toyota has many strengths being one of the industry leaders in the automotive industry, the seventh largest company in the world and become the largest manufacturer of automobiles, with production facilities in 28 nations around the world — and the highest-production facility of any non-domestic automaker in the United States. The largest of the manufacturer of automobile, Japanese automaker, Toyota Motor Corporation who owns the luxury brand Lexus, Hino and Daihatsu. Secondly is followed by the American's General Motors Corporation who owns a number of division and subsidiaries like Buick, Cadillac, Chevrolet, Daewoo, GMC, Pontiac, Holden, Hummer, Opel, Saturn and Saab. These two giant cars makers are fighting over the world's car leaders.
Toyota has three major brands underneath the company umbrella; Toyota, Lexus, and Scion. By having these three distinct brands, it lets the company reach many sectors of the globe in a choice of vehicle for customers. In June 2006, Toyota had 52 overseas manufacturing companies in 27 countries outside Japan; Toyota markets vehicles in more than 170 countries / regions. The Toyota Motor Group sold about 8.8 million Toyota/Lexus, Daihatsu and Hino vehicles worldwide in 2006, marking a new record. In 2007, the Group is aiming for a 6 percent increase in worldwide sales. Toyota President Katsuaki Watanabe, in his 2007 new year’s greeting, said that Toyota must implement thorough measures concerning quality and reinforce the foundations of manufacturing by implementing additional localization measures, including human resources development from a global perspective and further support for local affiliates to operate autonomously