Toyota Corporation Management Controls and Corporate Strategy Analysis - Case Study Example

Toyota Corporation Management Controls and Corporate Strategy Analysis Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 01, 12, 2010 Outline Introduction Toyota’s strategy Management Controls Performance measurements Major risks Relevance of controls in assessing risks and uncertainties Toyota’s management strategy and Andrew Campbell’s View Conclusion References Table of Contents Introduction 3 Toyota’s strategy 3 Management Controls 4 Benefits of controls to Toyota 7 Analysis 8 Performance measurements 9 Major risks 10 Toyota’s management strategy and Andrew Campbell’s View 12 Conclusion 14 References 15 Introduction Toyota Motor Corporation is one of the few automobile companies that have a rich history of continuous improvement and currently it is a knowledge driven institution. Management controls in Toyota are anchored on a strong philosophical foundation based on customer satisfaction through quality production. Just like any company operating in the global environment, Toyota has been vulnerable to risks and uncertainties and in the recent past; quality control lapse in one of their sub brands almost damaged the reputation of the company. This paper analyses the corporate strategy of Toyota Motor Corporation, its management controls and the vulnerability of the company towards risks and uncertainty. The paper will also bring into perspective Andrew Campbell’s view in relation with Toyota Motor Corporation global strategy. Finally the paper will present the relevance of the levers of control towards assessment of risks and uncertainties. Toyota’s strategy Toyota Motor Corporation’s vision of moving towards global motorization is well anchored by several regional sub strategies capitalising on the market niches of the company and different products strengths. Toyota Motor Corporation’s website (2010) indicates that the company’s vision of globalizing and localizing manufacturing goes hand in hand with the global motorization where different markets establishes local Toyota manufacturing plants particularly customised for that market. Toyota’s philosophy of ‘customer comes first’ is clearly inbuilt in the Toyota’s globalization and localization manufacturing strategy. The company’s philosophy is based on its production system of lean manufacturing with a great emphasis on quality and customer satisfaction. The management philosophy has been identified as the main driver of Toyota Motor Corporation in achieving its business goals. The philosophy has its tenets being long term view as a basis of management decision making, problem solving, respect to people and teamwork (Merchant & Stede 2007, p. 45). Management Controls Management controls are all deliberate efforts express or implied undertaken by an organisation management in order to ensure that the organization is protecting its assets, abiding by the government regulations and policies, achieving its targets and maintaining its reputation (Chenhall 2003, P. 132). Controls measures can be instituted before process inception, during processing and after processing. This makes it a daily management routine with complexities on the nature of problems facing the enterprise (Woods 2009, P. 70). The major deliverable of most management controls is attainment of the business objectives of an organisation which are outline in the corporate strategy. Management control system facilitates effective management decision making consequently measuring work progress and information quality (Merchant & Stede, 2007). Management control in Toyota Corporation is mainly driven by the company philosophy and its values but the use of market and bureaucratic controls is also unavoidable by the company. The critical controls of the Toyota are founded in its approach to business of ensuring harmony between people, society and the environment and further elaborated in the guiding principles of the company. Guiding principles Toyota guiding principles are the core tenets each and every employee of the company must comprehend while working with Toyota. According to Simon (1995, p. 83), guiding principles constitutes value statements and beliefs of the company that have been passed from generations to generations. The principles form the basis for ethical and cultural settings of the company consequently enhancing relationships and teamwork in the company (Simons, 1995, P. 87). The relevance of the guiding principles is that it enhances the psychological mind of the employee to be in tandem with the corporate goals. The five main principles of Toyota touch on the following human relations; a. Faithfulness while on duty b. Creativity and studiousness c. Practicability of opinions and suggestions d. Friendliness and communal acuity e. Respect for the deity Toyota production system Toyota’s production system incorporates two critical management control systems; Just-in-time production and Kaizen-Continuous improvement system. The merger of this new management control philosophies have been fruitful to Toyota as seen in the growth history of the company. Just in Time production concepts aims at increasing efficiency through reduction of inventory related costs. This is where only the required inventory will be ordered for consequently implying low storage costs. Cost reduction is not the only benefit of Just-in-time production but others like increased supply chain relationship and synchronised customer demand with the necessary inputs (Simons, 1995, P. 81). Toyota’s Just-in-time system with its inbuilt ‘Jidoka’ concept – efficiency and quality driven concept where machine stops immediately a quality drop in production is recorded, has enabled the Toyota motor corporation to be an efficient manufacturer. The Jidoka concept is a management control on the production quality. Internal control systems Toyota’s internal control systems are mainly the controls on the operations of the company. These are the controls to ensure safeguard of assets and adherence to rules and regulations. Internal controls are specific operational procedures that are designed to ensure compliance to regulations and rules and financial reporting procedures (Merchant & Stede 2007, P. 32). Internal controls in Toyota are wide ranging and touches on every aspect of business therefore each and every employee has to adhere to controls. Diagnostic controls This are controls that tests the system stability and quality standards. Diagnostic controls are important for quality driven organisations like Toyota where production quality is being monitored. Where the expected standards are not achieved, for the case of Toyota, production is immediately halted for a corrective response as per the Jidoka concept. Simons (1995, P. 86) argues that flagging systems that indicates a detour from the correct course of action in the production process entails a wide range of diagnostic controls ranging from quality assessments and monitors, system reviews and external audits. Interactive systems These are controls that have an immediate response to deviations from norms and procedures. They are commonly used in cybernetic systems that require responsive controls. In Toyota, production quality has not been left to lean back controls but rather active and intelligent interactive controls with the support of full time expert surveillance. Interactive controls are mainly management and teamwork driven. Benefits of controls to Toyota Compliance with the laws and regulations Non compliance to laws and regulations can be detrimental to the successful operations of a company and may result in payment of huge fines, penalties and in the extreme cases closure of operations. It is therefore imperative that Toyota has controls to ensure adherence to regulations and law in the various countries of its operations (Woods 2009, P. 71). Reasonable assurance and safeguards Toyota Motor Corporation’s asset management and information administration is one of the best in the world. Woods (2009, P. 72) indicates that the ability of the company to track costs to individual customer order and adherence to the just-in-time inventory management is one of the areas that the company has excelled. This has guaranteed the protection of the investment in the company. Operations and quality management The company’s Kaizen and Jidoka principles which are actually management controls are very critical. Continuous improvement of products based on kaizen principle and the unrelenting stand on quality production as provided in the Jidoka principle are the pillars of operational efficiency and quality according to Toyota Motor Corporation’s website (2010). Corporate governance and financial controls Quality financial reporting for Toyota is also one of the key strengths of the company. The company has incorporated one of the best reporting practises based on the US and Japan auditing standards as per the global strategy as indicated in the Toyota website (2010). It also includes several monitoring committees. All this controls ensure production of accurate and quality financial information. Vision and Philosophy The vision and philosophy of Toyota Motor Corporation coupled with its rich history has provided the company with relevant organisational culture. The philosophy of the company as indicated in Toyota Motor Corporation’s website (2010) is based on quality production and high regards to customer satisfaction is a source of inspiration to the company employees. Analysis Management controls and strategy cannot be separated in a knowledge driven organisation like Toyota. Business strategy sets the objectives of the organisation while management controls ensures that they are achieved. Toyota’s strategy of global motorization has been supported by its philosophies of harmonising people, community and environment. The company has been able to address the needs of global customers by establishing regional plants that uniquely address the needs of customers at that niche (Woods 2009, P. 69). Performance measurements These are metrics to assess the achievements of a business process. They constitute indicators which are quantifiable and able to explain variations in the deliverables of a business process. An efficient organisation like Toyota Motor Corporation is highly decentralised and has several functional units, this calls for a performance measurement which will be able to assess performance at the lowest level to financial reporting (Chenhall 2003, P. 140). For Toyota Motor Corporation the following metrics are used for performance measurement; a) Learning and growth measurements b) Internal performance measurements c) Customer satisfaction d) Financial measurements Learning and growth measurement are performance metrics that assesses technology platforms, management competencies and internal environment conduciveness for service delivery. For the case of Toyota, the foundational philosophy has a clear direction for the whole organisation strategy establishing the company’s commitment to technology, high regards to knowledge workers and a well laid down management philosophy. Internal performance measurements entail metrics that relate to brand equity, market penetration and presence, cost leadership and operational excellence and environmental impact assessment. This internal measurement defines whether the empowered staff are able to achieve corporate objectives by adhering to operational controls and regulations (Simons, 1995, P. 84). Toyota’s has a well coordinated franchise building via its network of sub brands and strategic global manufacturing plants. Customer satisfaction is the most critical aspect of performance since it gives an organisation value for its processes. Customer satisfaction measurements include; loyalty, increased purchases, dealer satisfaction and increased consumer products. Financial measurements mainly depend on the underlying operational measurements but they mainly gives an assessment of the investor’s value on the firm. The return on capital employed, return on investments and the earning before interest and tax will assess the overall productivity and growth of the firm. Major risks Risks and uncertainties are the most common threats to the attainment of corporate strategic goals. Risks are all the likely events and occurrences that may deter the organisation from attaining its goals. With all the laid down operational and tactical strategies at hand, the attainment of Toyota goals shall be feasible only with a proper risk management plan in place (Woods 2009, P. 71). Risk management strategies are pre planned risk avoidance and management procedures in an organisation. They ensure that the business of a company like Toyota is not interrupted. The following are the risks Toyota Motor Corporation is vulnerable to; a. Operational risks due to Toyota’s inability to secure its operations and production systems b. Competitive risks due to changes in Market demand in the Toyota customer bases, fuel shortages, difficulties in the employment market c. Legal risks due to changes in laws, policies and regulations affecting Toyota’s operations in different market segments d. Political risks in various Toyota operations zones Relevance of controls in assessing risks and uncertainties Controls are aimed at directing an organisation to the attainment of corporate strategy. Levers of controls assist in risks assessment and control. From the risk assessment point of view, the nature of risks and uncertainties Toyota is vulnerable to, will dictate the levers of control to be engaged. The susceptibility of Toyota to the risks related to climate change and increased fuel prices have forced the company to diversify its production to the areas of hybrid cars. Therefore risks do arise due to over reliance on particular levers of controls. Strategic risks do affect the business strategy and while strategic uncertainties do affect foundational assumptions upon which the corporate strategy is established and they include the threat of the new market entrants and technological advancements. The levers of controls are designed to counter the effects of risks and uncertainties. The applications of the levers of control should be in such a way that it minimises the susceptibility of the organisation to risks and uncertainties (Simons, 1995, P. 85). Over reliance on the diagnostic and belief systems may increase the organisations susceptibility to operational uncertainty and interactive controls may make the organisation susceptible to operational risks. Toyota’s management strategy and Andrew Campbell’s View Toyota Motor Corporation has been in continuous growth because of its culture and management concept of only producing quality products. On the face value, Toyota’s strategic plan is responding to specific challenges unique to Toyota and is intended to add value to Toyota’s customers. A critical look at the company during the various stages of its growth reveals its unique planning mechanism founded on traditions and guiding principles of the company. Currently the global motorisation strategy supported with research into hybrid automobiles is based on the challenges Toyota is anticipating as a result of climate change. This makes the company responsive to its unique environments (Merchant & Stede 2007, P. 32). Further the company has dedicated a unit of production to deal with the challenge of climate change and has already developed a strategic blue print on the same area. The development of first generation hybrid cars by this unit further emphasises systems theory of management which indicates that organisations are made up of several units working as a whole. Toyota’s market segmentation and market sub strategies further indicates relevance of unique decision making and planning relevant to the company rather than benchmarking, Contingency management theory also has been applied widely in Toyota Motor Corporation. In fact the foundation of the company was based on the specific need for cars in Japan immediately after the Second World War (Campbell 1999, P. 43). The expansion strategy into the US was based on the market demand and compliance to the US regulations which increased taxation on imported motor vehicles. In essence the very decisions of Toyota including the global strategy is based on the specific needs of the company unique to an extend it requires an in-house management solutions (Woods 2009, P. 70). Benchmarking has not been the core concept of Toyota in its planning process. Toyota has always focussed on the customer satisfaction and quality production. In its corporate strategy, the company clearly declares its core values based on the respect for the people, society and the environment (Merchant & Stede 2007, P. 32). This is further broken down to development of market driven products, development of environmentally friendly products and supply of highly quality products. Toyota has also developed management controls relevant to their production system. Toyota production system has inbuilt quality controls that will ensure that there is no compromise on product quality. The just-in-time inventory management uniquely related to Toyota is truly Toyota way; it is a process and a control at the same time. The establishment of financial services subsidiary to guard the supply chain of the company is a unique endeavour by the company to ensure that its susceptibility to the market risks are minimised (Campbell 1999, P. 45). Andrew Campbell’s view that organisations would be smart if they focus on their individual needs of their business rather than benchmarking holds for Toyota Motor Corporation. As seen in the management approach and unique culture founded on exceptional philosophical tenets, Toyota’s business planning approach has been novel and original and this has enhanced the company’s position both the innovation and market leadership. Conclusion Toyota Motor Corporation has succeeded in the achievement of their corporate goals due to much attention on development of necessary management controls and unique management planning. The main management controls for the company are founded upon a solid tradition and philosophy that has sustained the company’s improvement. The institution of interactive and diagnostic controls over the operations of the Toyota coupled with the just-in-time production process has been the driving force behind the enormous Toyota’s innovation and market dominance. Without the performance measurements in place but under efficient and effective management controls, the company can be able to achieve its strategic goals. Performance measurements have not been the core to Toyota Corporation but management controls and unique planning have been the guiding lines for the success in the attainment of corporate goals. This indeed confirms that Andrew Campbell’s view holds for Toyota motor corporation where benchmarking has not been the core of its success rather it’s unique strategic planning process and a great organization culture. References Campbell, A., 1999, ‘Tailored Not Benchmarked: A Fresh Look at Corporate Planning’, Harvard Business Review, Vol 77, no 2, pp 41-52. Chenhall, R.H., 2003, ‘Management Control Systems Design within its Organizational Context: Findings from Contingency based Research and Directions for the Future’. Accounting organizations and Society, Vol 28, no2, pp127-168. Merchant, K & Stede, V 2007, Management control systems: performance measurement, evaluation and incentives, Prentice Hall, London. Simons, R., 1995, Levers of Control, Harvard: Harvard Business Press, London. Simons, R., 1995, ‘Control in an Age of Empowerment’, Harvard Business Review, Vol 73, no 2, pp 80-88. Toyota Motor Corporation 2010, Toyota Motor Corporation, Toyota City, Viewed 6th December 2010, < http://www.toyota.co.jp/en/ir/presentation/2003/041603.pdf> Woods, M., 2009, ‘A Contingency Theory Perspective on the Risk Management Control System within Birmingham City Council’, Management Accounting Research, Vol 20, no1, pp 69-81. Read More