Contents

1. INTRODUCTION................................................................................................................................2
2. BRIEF TOYOTA BACKGROUND.....................................................................................................2
3. PESTEL Analysis of TOYOTA............................................................................................................4
3.1. PORTER’S FIVE FORCES ANALYSIS OF TOYATA...............................................................6
3.2. SWOT ANALYSIS.......................................................................................................................9
4. VALUE CHAIN ANALYSIS.............................................................................................................10
5. COST EFFICIENCY..........................................................................................................................11
6. STRATEGIC CAPABILITY..............................................................................................................12
6.1. RESOURCES..............................................................................................................................12
6.1.1.TANGIBLE RESOUCES....................................................................................................12
6.1.2.INTANGIBLE RESOURCES.............................................................................................13
6.1.3.HUMAN RESOURCES......................................................................................................13
6.2. THRESHOLD RESOURCES FOR TOYOTA............................................................................13
7. COMPETENCIES..............................................................................................................................14
7.1. THRESHOLD COMPETENCIES..............................................................................................14
7.2. UNIQUE RESOUCES AND CORE COMPETENCIES.............................................................15
7.3. CORE COMPETENCY..............................................................................................................17
8. Critical Success Factor........................................................................................................................19
9. Critical Success Factors of Toyota......................................................................................................20
10. Diversification.....................................................................................................................................24
11. Conclusions.........................................................................................................................................28
12. References...........................................................................................................................................29
1.INTRODUCTION
In this fiercely aggressive business world, the goal of most firms is to establish distinctive
or unique capabilities to gain a competitive advantage in the marketplace through utilising the
most of their core competencies. Competencies refer to the fundamental knowledge owned by
the firm (knowledge, know-how, experience, innovation and unique information), and to be
distinctive they are not confined to functional domains but cut across the firm and its
organisational boundaries. Today, business enterprises in developed countries operate in a more
complicated, and more regulated, environment. The strategic task, then, is to create a distinctive
way ahead, using whatever core competencies and resources at its disposal, against the
background and influence of the environment. Through these distinctive capabilities the
organisation seeks sustainable competitive advantage. Competition in many domestic and
international markets appears to be entering a new phase, in which product quality and
performance are becoming more important to customers than price. In such markets, the
effective management of the new product development process is the essence of competitive
advantage. Due to such changes, a review of the organisations’ strategic capabilities is a must if
they are to keep up with the demands of the changing times. This paper analyses the strategic
capabilities of Toyota Company in face of the ever-stiffening competition in the automotive
industry, as a potential tool to further strengthen Toyota’s position in the automobile market.

 2.BRIEF TOYOTA BACKGROUND

Toyota Motor Corporation is a famous Japanese multinational corporation, and is
considered the world’s second largest automaker of automobiles, trucks, buses, robots, and
providing financial services. Its founder is Kiichiro Toyoda, born in 1894, and the son of Sakichi
Toyoda, who became popular as the inventor of the automatic loom. Kiichiro inherited the spirit
of research and creation from his father, and devoted his entire life to the manufacture of cars.
After many years of hard work, Kiichiro finally succeeded in his completion of the A1 prototype
vehicle in 1935, which marked the beginning of the history of the Toyota Motor Corporation.

The first Type A Engine produced in 1934 was used in the first Model A1 passenger car
in May 1935 and the G1 truck in August 1935, and led to the production of the Model AA
passenger car in 1936. In addition to being famous with its cars, it still participates in the textile
business and makes automatic looms that are now fully computerised, and electric sewing
machines that are available in different parts of the world. It has several factories around the
world, which serve to manufacture and assemble vehicles for local markets. The corporation’s
factories are located in countries such as the United States, Australia, Canada, Poland, France,
Czech Republic, United Kingdom, Turkey, South Africa, Brazil, Argentina, Venezuela, Mexico,
Japan, Indonesia, Pakistan, India, Mexico, Malaysia, Thailand, China, Vietnam, and the
Philippines. Despite the many locations of its factories, its headquarters is located in Toyota,
Aichi, Japan.

            It invests a great deal of time and effort in its research into cleaner-burning vehicles, such
as promoting a Hybrid Synergy Drive and running a Hydrogen fuel cell in its vehicles. It has
significant market shares in developed countries, such as the United States, Europe, Africa and
Australia, and has significant markets in South East Asian countries. Its brands include the
Scion, its division in the United States, Guam and Puerto Rico, and the Lexus, which is Toyota’s
luxury vehicle brand.

            Aside from producing cars and other types of automobiles, such as SUVs and coasters,
Toyota also, participate in rallying or racing. The company’s presence in Motorsport can be
traced to the early 1970s, when Ove Andersson, a Swedish driver, drove for Toyota during the
RAC Rally in Great Britain, and in succeeding years, Toyota Team Europe was formed. Up to
the present, Toyota cars are still being used in a variety of racing events in different countries
around the world. These events include the CART in Vancouver, the Le Mans, the Indy Racing
League, the NASCAR, and the Toyota F1 Series.

           

 
3.PESTEL Analysis of TOYOTA
            Currently, Toyota faces a need for accelerated investment, in order to deploy the new
technologies, for pressing geo-political, economic, environmental and societal reasons.

            Political  Observers will see a continuing progression in the ruinous steps which have
forced the industry into a socio-politico-economic corner. Whether this is related to flat demand
or to the company’s creation of an ever-wider range of vehicles that many buyers seem to care
little about, there is a problem. The company is likewise linked closely to the policies of
governments, the earnings of banks. Little wonder then that so many emerging countries are keen
to develop an auto sector or that there is such a political pressure to protect it in the developed
countries. Toyota Company is currently dominated by little more than a handful of firms, each
wielding colossal financial, emotional and political power. The company’s approach to dealing
with political institutions has not always been brilliant. It tends to be good on technical issues,
although it has not always fully presented the longer-term options, in order to make the choices
and their implications clear.

Economic For much of the developed world, and increasingly for the developing world,
Toyota Company is a pillar company in auto mobile business, a flag of economic progress.
Without Toyota Company in automotive industry, it is impossible to develop an efficient steel
business, a plastic industry or a glass sector – other central foundations of economic progress.
The Toyota Company has been a core company, a unique economic phenomenon, which has
dominated the twentieth century. However, the automobile industry including the Toyota
Company now suffers from a series of structural schisms and has become riddled with
contradictions and economic discontinuities. For the capital markets and the finance sector, it has
lost a lot of its significance, as a result of ever declining profits and stagnant sales. The
proliferation of products means that it has become hopelessly wasteful of economic resources.
While all these and more sound like a very gloomy assessment of such a vast economic
phenomenon, the industry is not in the end despondent. A different future is possible for the
industry, a highly desirable one.
 Social As part of the development in automotive industry, the Toyota Company actually
affects the society as a whole. It employs millions of people directly, tens of millions indirectly.
Its products have transformed society, bringing undreamed-of levels of mobility, changing the
ways people live and work. The social value of the additional mobility that this industry brings
involves the value of the people being able to commute over longer distances easily, among
many others. For most of its existence the Toyota Company has been a model of social discipline
and control and it is not just that the auto sector offers a ‘pillar’ of something else. There are, on
the other hand, particular social issues to address in many developing countries, often those that
are the result of an undertone of religious faith. Toyota company has the role to play in helping
develop the mobility of such countries and it can be achieved at an acceptable social cost of the
country is prepared to learn the necessary lessons from those who have traveled this route before
it, and to make the necessary investments.

                Technological The Toyota Company works on a scale so awesome and has an

influence so vast that it is often difficult to see. The level and diversity of technologies that it
must deploy are increasing, which imposes both new investment burdens and new uncertainties
and risks. Roughly a million new cars and trucks are built around the world each week – they are
easily the most complex products of their kind to be mass-produced in such volumes. The
industry uses manufacturing technology that is the cutting edge of science. But still, the potential
for developing coordination skills, intellectual capabilities and emotional sensitivities through
electronic technologies remain far from fully exploited. There are numerous additional near-term
technological opportunities to adapt the company to changing energy availability. The
possibilities suggest that automotive technology is unexpectedly robust and provides a powerful
defence against energy starvation even if the real price of oil climbs steadily during the next
couple of decades.

                Legal Toyota Company is subject to numerous technical directives and regulations, as

well as legislation of a more legal nature. The legislation covers areas such as competition law,
intellectual property law, consumer protection and taxation, and emissions (air quality and fuels).
When the auto parts industry reached full development, accelerated technological efforts were
made to create a web of local suppliers that would make it possible to meet the growing legal
requirements for the national integration of production.
                Environmental Other than the vehicles themselves, and the roads and fuel needed to
run them; the business is intricately tied to the manufacture of a wide range of components and
the extraction of precious raw materials. Indirectly, it brings people road congestion, too many
fatalities and a wave of other environmental troubles. The effect to the Toyota Company is that
they needed to establish R&D centres to take advantage of research infrastructure and human
capital, so that they can develop vehicle products locally to satisfy the requirements of the
environmental and safety regulations more effectively.

3.1 PORTER’S FIVE FORCES ANALYSIS OF TOYATA

Michel Porter, an authority on competitive strategy, contends that a corporation is most

concerned with intensify of competition within its industry. The level of this intensity is
determined by basic competitive forces. "The collective strength of these forces", he contends,
"determines the ultimate profit potential in the industry, where profit potential in the industry,
where profit potential is measured in terms of long run return on investment capital". In carefully
scanning its industry, the corporation must assess the importance to its success of each of the 5
forces, those are as follows: threat of new entrants, rivalry among existing firms, and threat of
substitute products or services, bargaining power of buyers, bargaining power of suppliers. The
strong each of these forces, the more limited companies are in their ability to raise prices and
earn greater profits. A high force can be regarded as a threat because it is likely to reduce profits.
A low force in contrast, can be viewed as an opportunity because it may allow the company to
earn profits. In the short run, these forces act as constraints as a company's activities. In the long
run, however, it may be possible for a company, through its choice of strategy, to change the
strength of one or more of the forces to company’s advantage.

Threat of New Entrants

New entrants to an industry typically bring to its new capacity, a desire to gain market share and
substantial resources. They are, therefore, threats to an established corporation. The threat of
entry depends on the presence of entry barriers and the reaction that can be expected from
existing competitors. Global entrants may pose a threat to Toyota's market share, especially from
other Asia, Europe & U.S.A. car market leaders. Toyota as global car manufacturing company
started its production of vehicle outside Japan in 1959. Toyota has established its own car
manufacturing plant in different countries in Europe and successfully operating its business
activities. Ford, BMW & Jaguar already has secured market position in the British market
environment, therefore their threat is made all the greater as they now have knowledge of the
British market system and are building their customer and loyalty base. On the other hand
Toyota is trying to adopt the market share in Europe. Toyota as a multinational enterprise has
already launched its product to the online market and is currently mature stage of online product
cycle. However Toyota's online venture is in mature stage besides this they are always aware of
what the potential threats to its business are. More established online car manufacturing
company, who have already identified and possibly combated the risks to their market share,
may gain a competitive edge here, like rival Ford.

Threat of substitute products or services

Substitute products are those products that appear to be different but can satisfy the same need
as another product. Substitute products on the market could pose a threat to Toyota's if customers
are price sensitive. Ford, BMW, Vauxhall, Mitsubishi etc all goods at affordable prices and
target the lower end of the quality conscious customers. If Toyota's car prices are competitive as
a result of the quality of the vehicle or service being acceptable inferior and the production cost
are low, this will ultimately challenge Toyota's cost leadership pricing strategy.

Bargaining power of buyers: Buyers affect an industry through their ability to force down
prices, bargain for higher quality or more services and play competitors against each other. The
customer is ultimately king when they are car companies' consumers. They can exert more power
over Toyota's online than offline as the technology involved offers them the freedom of choice
not just of product but also of vehicle companies as it is convenient to switch. Bargaining power
of end users is not necessarily exerted on line regarding price sensitively of goods. The
sensitively surrounds the pricing strategy used by Toyota's as cost leadership and differentiation.

Bargaining power of suppliers

Suppliers can affect an industry through their ability to raise prices or reduce the quality of
purchased goods and services. Toyota's look to their internal means and market share to
determine whether they have power over the supplier and exert to gain their competitive edge.
Suppliers are forced into comprise, lowering their already competitive prices. Toyota also looks
to improve their own efficiencies in choosing their suppliers. This strategy is entitled, together
faster, simpler. A program to improve the quality levels of service from the supplier the force is
to then pass this on to the customer. As the industry is subject to inflation, interest rate increases,
exchange rate fluctuations and labor laws, Toyota as a car manufacturing company aware of their
low cost strategy and look to competitive pricing to begin with the supplier, so that the internal
competing demands for finances are prioritized.

Rivalry among existing firms

In most industries, corporations are mutually dependent. A competitive move by one firm can be
expected to have a noticeable effect on its competitors and thus may cause relation or counter
efforts. For example: car manufacturing industries dominated by Toyota, Honda, BMW, Ford,
and jaguar increased all level of competitive activity to such an extent that any price reduction or
new product introduction is now quickly followed by similar moves from other car
manufacturing companies. Porter contends, it is important to look beyond one's immediate
competitors, as there are other determinants of profitability. Specifically there might be
competition from substitute products or services. Buyers may perceive these alternatives as
substitutes; even though they are part of a different industry.
3.2 SWOT ANALYSIS
 Strengths One of Toyota’s most potent strength is that they are one of the world’s best known
brands. As they have been in the business for several years now, the experience that they have in
manufacturing cannot be overemphasised. They already have built a solid reputation for being a
dependable automaker. Additionally, they have the strength of being diverse with respect to their
product lines, having affiliated automotive brands including Aston Martin, Ford, Jaguar, Land
Rover, Lincoln, Mazda, Mercury and Volvo, which allows clients to choose from a variety of car
models to fit their lifestyle. They are also known to be supportive of societal causes, in particular
the fight for breast cancer and support after the September 11 attacks in the U.S. They pioneered
the moving assembly line, which became their mechanism for making vehicles more efficiently
and faster, therefore more affordable. Traditionally Toyota's international operations were a
source of that allowed the company to maintain its position as the second largest auto maker in
the world and to respond to GM's competitive moves.
 Weaknesses The company's organisational structure has become inefficient as the company
became more complex. This hindered Toyota's ability to manage its international network of
subsidiaries, branches, and companies. The weakness of its organisational strategy reflects to the
speculations over the likely performance of Toyota in the future, as the company’s financing
section is swamped down by hefty outstanding debts. The firm is not in risk of bankruptcy, but
the Toyota management is in a tight spot, and has to be extremely vigilant to not make it any
tighter. There is also a notable management issues within the company. Finally, because of the
increasing competition, the company has witnessed a decline in overall sales, a weakness on their
part as they have somehow failed to overcome the challenges that additional competition brings.

Opportunities Toyota Motors Company has the distinct opportunity to have cleaner engine
emissions, in alignment with their corporate responsibility to become environment-friendly.
Through working with environmental groups to help clean the environment, they also have the
opportunity to further enhance their image to the general public. Since they have already started
investing in Solar Power, the end is a more viable prospect. Toyota could further widen the scope
of their opportunities through specialising and rationalising its worldwide operations on a
regional basis and to develop a network organisation in which its subsidiaries would increase
their transnational linkages. Besides Toyota learning about the possibilities of producing quality
automotive products in their areas of operation at a comparative cost advantage, other relevant
factors could bring about new opportunities for exporting vehicles: the parent company's
efficiency-seeking strategy; its competitive disadvantage in the small-car segment of the market
and the competitors' moves in this market-segment; and the new more flexible regulations in the
respective countries in which they have manufacturing plants. Further, with Toyota’s existing
capability to innovate on automobiles, they have the opportunity to penetrate a still larger scope
of market.             

Threats. As with any firm in the automotive industry, Toyota faces very tight competitive
rivalry in the auto market. Competition is escalating, with the threat of new entrants continuously
flowing into the market from South Korea, China and new plants in Eastern Europe. Toyota is
also exposed to the risk of movement in the price of raw materials such as steel, glass, rubber and
fuel. The key economies in the US, Europe and the Pacific are also experiencing slow downs
lately. These economic factors are latent threats for the company under analysis. Further,
substitute products such as Natural gas, Electricity, Ethanol, Vegetable oil, Sunlight, Water poses
a distinct threat to the sustainability of company sales. While Toyota strategies responded to the
local opportunities and competitive advantages that were built over time in different national
markets, the competitiveness of foreign operations was also dependent upon the company's
management capabilities and its overall position in the industry worldwide. If such factors were
to perform under expectation, their competitiveness in the international scene would suffer
seriously.

4.VALUE CHAIN ANALYSIS

  Value chain is a tool to identify and to analyse the origins of competitive advantages
and the activities of the business could be grouped into two: primary and support activities. What
activities a business undertakes is linked to achieving its competitive advantage, and Toyota
seemed to be best prepared to implement a global strategy, because of the superior competitive
advantages of its foreign operations compared with GM and Chrysler. Paradoxically, Toyota's
rivals showed a greater disposition to use resources from outside of the United States. It was not
until 1994 that Toyota focused on developing a global strategy as a means to enhance its
competitive position in the industry. Before then, Toyota largely focused on building a strategy
that would allow the company to recover its competitive position in its own home market, which
was essential for survival. An analysis of the structural and institutional factors that shaped
Toyota's strategic response both to the new industry rules and the short-term challenges posed by
other industry competitors explains this paradox. A number of broad sustainability challenges set
the context for all of the value chain activities. These issues apply across the value chain: (1)
Population growth; (2) Urbanisation; (3) Child mortality; (4) Maternal health; (5) Infectious
diseases; (6) Biodiversity; (7) Loss of ecosystem services; (8) Poverty; (9) Education; and (10)
Gender Equality. All these issues are attended to by the Toyota Motor Company in alignment
with their efforts to maintain sustainable competitive advantage through preserving the good
public image that their clients expect from them.

5.COST EFFICIENCY

An important strategic capability in an organization is to ensure attention is paid to achieving and

continually improving cost efficiency. This will involve both resources and competencies to
manage costs. Customers can benefit from cost efficiency in terms of lower prices or more
product features for the same price.

For Toyota, Lean production changed product development and engineering techniques of
manufacturing. One of those techniques is Die-change technique which gives cost efficiency. In
which dies can be changed frequently using rollers. Dies were changed by workers themselves,
instead of experts, which reduces time and other related costs. This results the following.

a. More profits if small batches are manufactured

b. Large Inventory holding cost got reduced
c. Stamping mistakes were easily identified before the car is assembled
d. Quality of car increased

By minimizing the wastes the cost will automatically reduces. So the techniques like kanban
systems, quality at the source, just in time, uniform plant loading and by Focused factory
networks Toyota reduced its cost. By Energy conversion it reproduced energy required for
production. By this also it saved cost.
6. STRATEGIC CAPABILITY
Strategic capability is the adequacy and sustainability of the resources and competencies
of an organization for it to survive and prosper. It is underpinned by the resources and
competencies of an organization. Strategy is concerned with matching a firm’s resources and
competencies to the opportunities that arise in the external environment. Increasing emphasis on
the role of resources and capabilities as the basis for strategy is the result of two factors. First, as
firms’ industry environments have become more unstable, so internal resources and capabilities
rather than external market focus has been viewed as a securer base for formulating strategy.
Second, it has become increasingly apparent that competitive advantage rather than industry
attractiveness is the primary source of superior profitability.

6.1RESOURCES
Resources are normally three types.

6.1.1 TANGIBLE RESOUCES: These are physical assets of an organization such as plant,
equipment, land, and mineral resources. And financial assets like cash, securities, and borrowing
capacity.

For Toyota: financial resources:

Cash: 4,871.8 billion Yen

Plant: Toyota Motor Engineering & Manufacturing (TEMA), headquartered in Erlanger,

Kentucky, is responsible for Toyota's engineering design and development, R&D, and
manufacturing activities in the U.S., Mexico and Canada. In 13 manufacturing locations across
North America, team members are producing 11 vehicles including the Avalon, Camry, Corolla,
Matrix, RAV4, Sienna, Sequoia, Tacoma, Tundra, Venza and the Lexus RX 350.
6.1.2 INTANGIBLE RESOURCES: These are non physical assets such as information, reputation,
and knowledge. Intellectual capital is an important aspect of the intangible resources of the
organization. This includes brands, business systems, and customer database. In a knowledge
based economy intellectual capital is a major asset.

For Toyota:

 Information about the customer requirements.

 Trademark
 Good brand name.
 Culture of Toyota:
1) Selecting employees for Life
2) People are the heart and soul of the Toyota Way
3) Stopping the line is everyone’s responsibility
4) Hiring Right person, in the right amount, in the right form at the right time
5) Funnel Model of Recruitment – Many prospects lead to few hires
6) Training people like Surgeons

6.1.3 HUMAN RESOURCES: It includes demographic profile of people in an organization. The

intangible asset of their skills and knowledge is also important. In knowledge based economies
people are most valuable asset.

For Toyota: some information about employee

6.2 THRESHOLD RESOURCES FOR TOYOTA

 Plant to produce automobiles.
 Capital required for production, distribution and promotional activities.
 Human resource needed for organization.
 Good brand name or good will in public.
 Manufacturing equipment.
 Raw material required for production.
  Inputs like power, water.

7 COMPETENCIES

Resources are important but how the organization utilized its resources is much more important.
There would be no point in having equipment or valuable knowledge or valuable brand if they
were not used effectively. The efficiency and effectiveness of physical, financial and human
resources in an organization depends on not just their existence but how they are managed.
Competencies are the activities and processes through which an organization deploys its
resources effectively. An organizational capability is a “firm’s capacity to deploy resources for a
desired end result.

Threshold capabilities are those capabilities for the organization to be able to compete in a given
market. If an organization does not posses these resources it will be unable to meet customer’s
minimum requirements and therefore be unable to continue to exist. For Toyota,

7.1 THRESHOLD COMPETENCIES

 Demand forecasting for future production.

 Manufacturing process: by using the efficient manufacturing process only they will
convert raw material into finished product in a better way.
 Give training to employee. By this they will perform better.
 Quality management: by this the organizations can give good quality products.
 Trading off time, cost and quality.
 Analyzing external market conditions.

Identifying these threshold resources and competencies are very important for an organization. If
it does not pay attention to them they can not survive for a long time. They do not have
capability to be competitive.
7.2 UNIQUE RESOUCES AND CORE COMPETENCIES
Threshold resources and competencies are important but they do not create competitive
advantage. Competitive advantage is created and sustained if the organization has unique
capabilities and resources that competitors cannot imitate.

Unique resources are those resources that critically underpin competitive advantage and that
others cannot easily imitate.

For Toyota:

 Plants that Operate in Harmony with the Natural Environment:

For an automaker, making cars, i.e., manufacturing is the most fundamental operation. Toyota’s
Sustainable Plant Concept attempts to incorporate the concept of sustainability into
manufacturing. Toward its goal of achieving a sustainable plant based on the concept of "a plant
that fully utilizes natural resources, while operating in harmony with the natural environment,"
Toyota established the following three basic initiatives

Energy reduction: Development and introduction of low CO2-emitting production technologies

and daily kaizen (improvement) activities.

By the end of FY2006, the Tsutsumi Plant had reduced its CO2 emissions by 50% or more from
the 1990 level by taking such actions as installing an innovative gas engine cogeneration system.
The Tsutsumi Plant plans to further conserve energy by eliminating energy waste. At the
Takaoka Plant, Toyota is introducing low CO2 production technologies to reduce the number of
drying ovens needed in its painting process. The technologies implemented on the new No.1
Painting Line, which began operation in 2007, and to be implemented on the new No. 2 Painting
Line, are together expected to reduce the Plant's annual CO2 emissions by approximately 35%.

Energy conversion: Utilization of renewable energy (solar, etc.).

In the area of utilizing renewable energy, the Tsutsumi Plant installed a polysilicon-type
photovoltaic power generation system with a rated output of approximately 2,000 kW. This
system is one of the largest being used by an automobile production plant in the world and is
capable of supplying approximately half the electricity needed in the assembly process.
Additionally, part of the generated electricity is stored in batteries and used for powering the
streetlights surrounding the Plant.

7.3Local community involvement and ecological preservation

Tree planting at production plants: "Green for Tomorrow". In line with these three basic
initiatives, the Tsutsumi Plant begantaking actions toward the goal of achieving a sustainable
plant. The goal of the sustainable plant concept is the creation of "a plant that fully utilizes
natural resources, while operating in harmony with the natural environment." Toyota hopes that
employees will look at the efforts and feel proud to work at the Tsutsumi Plant. A sustainable
plant can only be achieved when the plant’s facilities, organizational structures, and the
awareness of the people who work there all become aligned in working toward this goal.

 Toyota knows how to utilize workers very efficiently. Workers are the part of the
company. So they will work with more interest and enthusiasm. Workers are grouped
into teams with team leader. Team was asked to suggest ways to improve the quality.
i.e.,‘Kaizen’, the technique of continuous improvement. Problems were rectified
immediately by stopping the line unlike in Mass Production where the line was stopped
after the completion of work. Workers learnt to rectify the mistakes. Slowly the line was
never stopped and there were no errors in the system.

 Supply Chain Modifications: Suppliers were organized into functional tiers. Different
responsibilities were assigned to firms in each tier. For Example, First tier suppliers were
responsible for working as an integral part of the product – development team. Second
Tier of suppliers are formed from the first tier suppliers. They were assigned the job of
fabricating individuals’ parts. Removed Vertical Integration among suppliers which lead
to large bureaucracy. Suppliers were totally involved in Toyota’s Product Development.
 Toyota Technical Center (TTC), a division of TEMA, is located in Ann Arbor,
Michigan. Recent expansion in York Township has increased investment by $187
million. This new location is home to Toyota's first full safety test facility outside Japan.
8. CORE COMPETENCY

These are the activities and processes through which resources are deployed in such a way as to
achieve competitive advantage in ways that others can not imitate.

For Toyota: “Toyota Production System” or “Lean Manufacturing System”

In Toyota Production System, it mainly focuses on the following.

1. Focuses explicitly on perfection

2. Costs decline continuously

3. Focuses on Zero Defects

4. Focuses on Zero inventories

5. Enormous Product Variety

Here for Toyota Production System, the main strategy to achieve the above is to minimize waste
(Muda), unevenness (Mura) and over burden (Muri).

There are 7 types of wastes. Those are Waste from Overproduction, Waste of Waiting Time,
Transportation Waste, Inventory Waste, Processing Waste, Waste of Motion and waste of
correction.

Toyota minimized these wastes by

1. Focused factory networks: These are small specialized plants that limit the range of
products produced (sometimes only one type of product for an entire facility). They can do a
better job because repetition and concentration in one area allows its work force and
managers to become effective and experienced in the task required for success. By this
technique Toyota maximized its output by using minimum inputs. It saved the time and it
overcomes the problems of overburden and over production. Because all plants have idea
about what other plants are producing and how much quantity. So they will produce
according to other requirements.
2. Kanban production control systems: Uses simple, visual signals to control the movement
of materials between work centers. It identifies the part number and container capacity,
along with other information, and is used to provide an easily understood, visual signal that
a specific activity is required. By this technique Toyota minimized the material waste. It
provides the raw material what exactly the process wants.

3. Group technology: similar parts are arranged into families, and processes to make parts
that are arranged in specialized work cell. It simplifies schedules, reduce transportation and
ease supervision. By this technique Toyota reduced the waste of motions. So it saved more
time.

4. Quality at the source:

i) Do it right the first time

ii) When something goes wrong, stop the process immediately and address
iii) Workers are trained and empowered to control their own process

5. JIT production: this system can be described as a system that produces and delivers
finished goods just in time to be sold, subassemblies just in time to be assembled into
finished goods, and purchased materials just in time to be transformed into fabricated parts.
Just in time is a pull manufacturing system where production starts only on demand.
a. Produce what is needed when it is needed
b. Intended for repetitive manufacturing
c. Low inventory, ordered only as needed

9. Critical Success Factor 

Critical success factors (CSFs) have been used significantly to present or identify a few key
factors that organizations should focus on to be successful.  As a definition, critical success
factors refer to "the limited number of areas in which satisfactory results will ensure successful
competitive performance for the individual, department, organization”.  Identifying CSFs is
important as it allows firms to focus their efforts on building their capabilities to meet the CSFs,
or even allow firms to decide if they have the capability to build the requirements necessary to
meet critical success factors (CSFs).

MAIN ASPECTS OF CSFs

CSFs are tailored to a firm's or manager’s particular situation as different situations (e.g.
industry, division, individual) lead to different critical success factors.  Rockart and Bullen
presented five key sources of CSFs: the industry, competitive strategy and industry
position, environmental factors, temporal factors, and managerial position (if considered
from an individual's point of view).

Critical Success Factors of Toyota

Toyota is clearly a dominate leader in automobile manufacturing today. The principles
employed at every level of the company have certainly led to a standard of quality that no one in
the automotive industry can argue with. What these principles are and how they are implemented
within the Toyota Corporation can certainly help the automakers of the United States and indeed
the world achieves the same success. When these 14 principles are listed and compared with
some of the strategies that United States automakers have employed, it becomes clear why
Toyota has succeeded as it has. Even though there are many critical success factors for Toyota
these 14 principles were considered as most important CSFs for growth of Toyota.

The 14 Principles of the Toyota Way

The Toyota Way has been called "a system designed to provide the tools for people to
continually improve their work"

The 14 principles of The Toyota Way are organized in four sections:

1. Long-Term Philosophy
2. The Right Process Will Produce the Right Results
3. Add Value to the Organization by Developing Your People
4. Continuously Solving Root Problems Drives Organizational Learning
The principles are set out and briefly described below:

Section I — Long-Term Philosophy

Principle 1

 Base your management decisions on a long-term philosophy, even at the expense of

short-term financial goals.
 People need purpose to find motivation and establish goals.
Section II — the Right Process Will Produce the Right Results

Principle 2

 Create a continuous process flow to bring problems to the surface.

 Work processes are redesigned to eliminate waste (muda) through the process of
continuous improvement — kaizen. The eight types of muda are:
1) Overproduction
2) Waiting (time on hand)
3) Unnecessary transport or conveyance
4) Over processing or incorrect processing
5) Excess inventory
6) Unnecessary movement
7) Defects
8) Unused employee creativity
Principle 3

Use “pulls" systems to avoid overproduction. A method where a process signals its predecessor
that more material is needed. The pull system produces only the required material after the
subsequent operation signals a need for it. This process is necessary to reduce overproduction.

Principle 4 Level out the workload (heijunka). (Work like the tortoise, not the hare). This helps
achieve the goal of minimizing waste (muda), not overburdening people or the equipment (muri),
and not creating uneven production levels (mura).
Principle 5

Build a culture of stopping to fix problems, to get quality right the first time. Quality takes
precedence (Jidoka). Any employee in the Toyota Production System has the authority to stop
the process to signal a quality issue.

Principle 6

Standardized tasks and processes are the foundation for continuous improvement and employee
empowerment. Although Toyota has a bureaucratic system, the way that it is implemented
allows for continuous improvement (kaizen) from the people affected by that system. It
empowers the employee to aid in the growth and improvement of the company.

Principle 7

Use visual control so no problems are hidden. Included in this principle is the 5S Program - 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.

1) Sort: Sort out unneeded items

2) Straighten: Have a place for everything
3) Shine: Keep the area clean
4) Standardize: Create rules and standard operating procedures
5) Sustain: Maintain the system and continue to improve it
Principle 8

Use only reliable, thoroughly tested technology that serves your people and processes.
Technology is pulled by manufacturing, not pushed to manufacturing.

Section III — Add Value to the Organization by Developing Your People

Principle 9

Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.
Without constant attention, the principles will fade. The principles have to be ingrained, it must
be the way one thinks. Employees must be educated and trained: they have to maintain a learning
organization.

Principle 10

Develop exceptional people and teams who follow your company's philosophy. Teams should
consist of 4-5 people and numerous management tiers. Success is based on the team, not the
individual.

Principle 11

Respect your extended network of partners and suppliers by challenging them and helping them
improve. Toyota treats suppliers much like they treat their employees, challenging them to do
better and helping them to achieve it. Toyota provides cross functional teams to help suppliers
discover and fix problems so that they can become a stronger, better supplier.

Section IV: Continuously Solving Root Problems Drives Organizational Learning

Principle 12

Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu). Toyota
managers are expected to "go-and-see" operations. Without experiencing the situation firsthand,
managers will not have an understanding of how it can be improved. Furthermore, managers use
Tadashi Yamashima's (President, Toyota Technical Center (TCC)) ten management principles as
a guideline:

1) Always keep the final target in mind.

2) Clearly assign tasks to yourself and others.
3) Think and speak on verified, proven information and data.
4) Take full advantage of the wisdom and experiences of others to send, gather or discuss
information.
5) Share information with others in a timely fashion.
6) Always report, inform and consult in a timely manner.
7) Analyze and understand shortcomings in your capabilities in a measurable way.
8) Relentlessly strive to conduct kaizen activities.
 9) Think "outside the box," or beyond common sense and standard rules.
10) Always be mindful of protecting your safety and health.
Principle 13

Make decisions slowly by consensus, thoroughly considering all options; implement decisions
rapidly (nemawashi). The following are decision parameters:

1) Find what is really going on (go-and-see) to test

2) Determine the underlying cause
3) Consider a broad range of alternatives
4) Build consensus on the resolution
5) Use efficient communication tools
Principle 14

Become a learning organization through relentless reflection (hansei) and continuous

improvement (kaizen). The process of becoming a learning organization involves criticizing
every aspect of what one does. The general problem solving technique to determine the root
cause of a problem includes:

1) Initial problem perception

2) Clarify the problem
3) Locate area/point of cause
4) Investigate root cause (5 whys)
5) Countermeasure
6) Evaluate
7) Standardize

10.Diversification is a form of corporate strategy for a company. It seeks to increase

profitability through greater sales volume obtained from new products and new markets.
Diversification can occur either at the business unit level or at the corporate level. At the
business unit level, it is most likely to expand into a new segment of an industry which the
business is already in. At the corporate level, it is generally and it is also very interesting entering
a promising business outside of the scope of the existing business unit.
Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The
first three strategies are usually pursued with the same technical, financial, and merchandising
resources used for the original product line, whereas diversification usually requires a company
to acquire new skills, new techniques and new facilities.

The strategies of diversification can include internal development of new products or markets,
acquisition of a firm, alliance with a complementary company, licensing of new technologies,
and distributing or importing a products line manufactured by another firm. Generally, the final
strategy involves a combination of these options. This combination is determined in function of
available opportunities and consistency with the objectives and the resources of the company.

There are three types of diversification:

Concentric Diversification,

Horizontal Diversification,

Conglomerate Diversification.
Diversification is the riskiest of the four strategies presented in the Ansoff matrix and requires
the most careful investigation. A firm should choose this option only when the current product or
current market orientation does not offer further opportunities for growth. In order to measure
the chances of success, different tests can be done.

 The attractiveness test: the industry that has been chosen has to be either attractive or
capable of being made attractive.
 The cost-of-entry test: the cost of entry must not capitalize all future profits.
 The better-off test: the new unit must either gain competitive advantage from its link with
the corporation or vice versa.

Toyota’s Diversity Strategy:

Toyota is committed to the success of its 21st Century Diversity Strategy. The Toyota Diversity
Strategy outlines the processes and programs will use them to achieve their diversity goals. At
the core of their plan are elements from which they will build a sustainable diversity platform:
 They aligned the diversity commitment to the tenets of the Toyota Way, “respect for
people” and “continuous improvement.”
 They secured the support of their senior management.
 They established real goals — ones that are actionable, ones that stretch them beyond the
status quo, and, most importantly, ones that they can achieve now.
 They have made themselves accountable and have established criteria by which they will
measure change and will be judged.
 They have committed to a training and education program to acquire new skills and gain
new understanding.
 They created a diversity management structure with the authority and conviction to push
the organization toward its vision.
 They have committed to an ongoing communication strategy and will communicate their
commitment and progress in diversity to all who have a stake in the future of Toyota.

Toyota is committed to developing a culture that views diversity as a pathway to a better Toyota.
This commitment demands that they support the human resources aspect of the diversity
strategy. They are embarking on a five-prong plan to ensure that their diversity initiatives
succeed throughout the organization.
First, the senior management of Toyota North American companies will communicate the
strategy to every manager and associate. There will be a system-wide rollout, both orally and in
writing.
Second, the implementation of the diversity strategy will be driven by real benchmarks and real
timetables, which will be set forth in a written document to be provided to all relevant managers.

Third, they will dedicate a lead manager in each area to ensure full compliance at all levels of the
company. These lead managers will report directly to a senior level executive on a quarterly
basis. In addition, the organization will provide incentives to managers (reflected in rewards,
bonuses and positive performance evaluations) to ensure their full compliance with the diversity
plan and their full energies to achieving the specific goals of the plan and meeting its timetables.

Fourth, they will have in place a planned deviation system, which will address situations where
managers fail to achieve their established goals and timetables or commit less than their full
efforts to achieving them.

Finally, they will continue to work with outside organizations to ensure that the strategy is
working and remains state of the art. They believe that their diversity strategy is the first step in
becoming the company strives to be.
11.Conclusions

             In 1982, it was observed that the automotive industry has been depended upon by other
industrial sectors to provide them with means with which to optimise their investment capital
because of the transfer of its technology, which basically means that the manufacturing and
materials handling processes that revolve around mass auto production will be, in the future, far
removed from their original use through consulting engineering firms that undertake to design
and equip factories. The tendency for car manufacturers, then, will be to focus on competition
that would become more rigorous, giving special attention to profit-gaining activities and
concentrating also on arranging for financial, marketing and industrial cooperation among car
makers.

Toyota, though it has started as a small company with lower price but maintained quality
from the beginning. It was the first company in the world which introduced lean manufacturing
technology, and has unique resources and core competencies. The 14 management principles
which are the critical success factors and unique factors followed by Toyota made it successful
company and others viewed these principles in such a way if any company followed these
principles they will definitely get success. By following these unique resources and
competencies and diversification in different fields Toyota still remained one of the successful
companies in this competitive world.
12. References

BOOKS
 Gerry Johnson, Kevan Scholes, Richard Whittington, Exploring Corporate Strtegy,
Seventh Edition, Pearson Education, U.K.
 Jeffrey K. Liker, The Toyota Way, Twentieth Edition, Tata McGraw-Hill Publishing
Company Ltd, New Delhi.
 The Toyota Kata, Tata Mc Graw-Hill Publishing Company ltd New Delhi.

 Liker, J; Meier, D. (2005). The Toyota Way Fieldbook: A Practical Guide for
Implementing Toyota's 4Ps. McGraw-Hill. ISBN 0071448934.
 Liker, J (2004). The Toyota Way: 14 Management Principles from the World's Greatest
Manufacturer.

Websites
 Hino, Satoshi (20B05). Inside the Mind of Toyota: Management Principles for Enduring
Growth. University Park, IL: Productivity Press. ISBN 978-1-56327-300-1.
http://www.productivitypress.com/productdetails.cfm?SKU=3004.
 Liker, Jeffrey (2004). The 14 Principles Of The Toyota Way: An Executive Summary of
the Culture Behind TPS. http://www.si.umich.edu/ICOS/Liker04.pdf.
 www.toyota.com
 www.google.com
 www.googlebooks.com