Toyota’s Business Model on Trial

Toyota’s business model comes under increasing scrutiny as auto sales plummet around the world. Its reaction to a forecast billion-dollar loss suggests it has a promising long-term survival plan that contrasts with its American and European rivals


This gloomy report [Jan 2009] was followed by a more upbeat one six months later.

Original Report follows

Leaders we deserve has made no secret of its respect for the creative management shown by Toyota over the years. We even helped coin the term Toyotaoism (with Professor Xu) for its unique management philosophy.

The sternest test of a business model is when it has to deal with external threats to its core products. That is the situation facing all auto-manufacturers. Toyota is hurting, and Company chief Katsuaki Watanabe recently announced a projection for a first annual trading loss in its seventy year history.

And what a loss: 150bn yen (£1.1bn) in yearly operating profits from its core operations, attributed to an unprecedented global financial downturn coupled with a rising yen. Its December 2008 US sales fell faster that than those of GM or Ford

But Toyota’s pain still seems likely to be more sustainable than that being suffered by its rivals, whose fate is one of the urgent problems facing incoming President Obama, and who are pressing (begging?) for state bale-outs. For Chrysler, and GM, job losses are inevitable, while even survival in their present state seems increasingly unlikely.

In contrast, Toyota appears to be confronting its short-term problems in light of a longer-term strategy. Its reaction to over-supply is to announced a temporary suspension of production for 11 days [in Feb-March 2009] in all its 12 Japanese production units.

The old and the new

In some ways the response is one consistent with the Japanese cultural tradition which regards employment as a life-long two-way contract. Toyota’s business model preserves that deeply-held cultural value. On the other hand its success is strongly linked to its capacity to innovate. Innovation has been incremental and remorseless, and at time radical. Professor Xu’s analysis of creative organisations in China and Japan identifies Toyota as an example of a one such organisation.

The creativity is manifest in a culture within which ideas are expected from all employees, and reinforced through leadership support providing both intrinsic and extrinsic rewards. A worker in an automotive plant is still expected to pay vigilant attention to repetitive regimes and demanding quality targets. However, the creativity (that word again) which establishes teams with a degree of involvement and control over their activities (for example through the cell system, and its quality circles) comprise a genuine innovation which contrasts with the celebrated Fordist production line, with its direct connection to Adam Smith’s principle of division of labor.

Built to last

To use the terminology of American business theorist, Toyota is a built to last company. Its leaders may or may not be charismatic, but the results speak for themselves. Toyota has to be studied in the context of its cultural setting, and care must be taken in making comparisons with firms such as GM. It is even more difficult to make a simple comparison with Marks & Spencer, which according to Sir Stuart Rose [7th Jan 2009] faces its financial crisis by closing 27 stores, 25 of which were the Simply Food group opened recently, and quickly recognised as ill-matched to the company’s strategy needs (too small, poor and locational access).

What is no longer in doubt, is that the longer-term perspective offered by the Toyotaoism model provides a compelling case for creative leadership of creative organisations. Curiously, the current financial crisis may also bring (force) opportunities for new organisational structures in the future. That is the implication of the notion of innovation arising from what Schumpeter called creative destruction

4 Responses to Toyota’s Business Model on Trial

  1. mobil bekas says:

    Toyota generally makes good cars. When I drive a Toyota, it’s obvious that people who enjoy driving were involved in the development, Toyota is the best

  2. Tudor says:

    I agree with your basic view. It is unfortunate that Toyota cars are currently experiencing serious recalls which are damaging to the company’s generally deserved reputation for quality.

  3. opm says:

    I agree but one thing i admire with Toyota is the way they took the responsibility by recalling the cars…impressive…

  4. Toyota Wallpaper…

    […]Toyota’s Business Model on Trial « Leaders We Deserve[…]…

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