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Posted on March 8th, 2013, by

Section A.

1. Value Chain


Generally, the traditional value chain developing according to Porter’s framework is the following (Figure 1).


Figure 1. Organizational value chain


Toyota has developed a unique lean production system, according to which, the value chain processes can be reshaped in a vertical way as follows (Figure 2).


Figure 2. Lean production system of Toyota

It is possible to explain the processes related to adding and destroying value taking place at Toyota according to Figure 1. At the stage of inbound logistics, the materials are received from the company’s suppliers. Through making agreements with the suppliers and using contracts signed for the lifetime of the device, Toyota managed to reach cost-effective supply management (creation of value). JIT approach also adds value to the process. Recent pressure on suppliers aimed at increasing production levels also resulted in destroying value (the quality of supplies lowered).

Operations include processes of manufacturing and assembly. Here the main value is created through lean production process, effective control systems and TPM approach. Here Toyota’s recent trend towards deploying manufacturing processes outside Japan also destroyed value, since the quality had suffered. At the stage of outbound logistics, ready products are sent through the distribution channels to the customers. Toyota contacts a variety of retailers and has own show rooms. At this stage value is not added.

At marketing and sales stage, Toyota uses all types of media and advertising to reach the customers. This process can add value to the production when the company researches the market and responds to customer demand through analyzing the effect of marketing. Thus, it is possible that value is created at this stage. However, the negative response to Toyota car recalls and consequent information also performed through marketing channels have destroyed the value. At service stage various customer incentives and such processes as after-sales service, training, repairing, handling of complaints etc. take place. This stage also adds value to the product.

b) As a result, currently Toyota can get:

cost-effective supply management (+5 points)

JIT system (+5)

Pressure on suppliers (-5)

Lean production system (+5)

TPM (+5)

Quality control systems (+5)

Lower quality overseas (-5)

Late recalls of the problem models (-5)

Effective advertising (+5)

Messages on problematic cars (-5)

Effective service (+5)

Incentives for recent customers (+5)

Overall, Toyota has 20 points, which is a positive value; but it is evident that Toyota has lost a lot of competitive advantages as a result of the recent crisis.


2. 5 force and differentiation strategy

a) Five forces of Porter’s framework include: the threat of new entrants, the bargaining power of customers, the threat of substitute products, the amount of bargaining power of suppliers, and the intensity of competitive rivalry.

For US car manufacturing industry, the threat of new entrants is rather low, since it might require significant investments and technologies. New players can hardly compete with industry leaders. Regarding customer bargaining power in US it is possible to estimate it as high. Most customers make a certain bargain when purchasing a car, and manufacturers have to take this into account. The threat of substitutes is comparatively low, since there are no direct substitutes for cars. Competitive rivalry is car manufacturing industry is very high, both in the US and worldwide.

b) In the case study Crisis management at Toyota the goal to become a market leader has in fact destroyed the major competitive advantage of the company quality. In the attempt to increase production by 15% Toyota has stepped away from its management principles concentrated on the balance of quality and loyalty to customers. After opening new factories overseas it became impossible to realize the principles of lean manufacturing everywhere, and to retain the same corporate culture. Moreover, Toyota has forced the suppliers to increase their capacity during a short period of time, and this also affected quality. Toyota was a leader because it offered very high quality and reliability of cars at a reasonable price. In the attempt to become a market leader this leadership has been severely compromised.

c) Three Porter’s generic strategies are cost leadership, differentiation and focus. There are two types of focus strategies cost focus and differentiation focus. Toyota can try to adopt one of these strategies to return its competitive advantage. Cost leadership was the previous strategy of Toyota; however, it did not have an effective implementation. Toyota can try to become a cost leader in car manufacturing industry if it manages to adopt its lean production strategy and integrate manufacturing processes at all locations. Differentiation strategy is more native for Toyota since it has been pursuing this approach for many years. The easiest way for Toyota is to return to this strategy; however, Toyota’s perception as the unique combination of high quality and good price is seriously affected, and it might more effective to adopt a differentiation focus strategy. This means that Toyota can successfully utilize the different needs of customers in different market segments, and address several of them, e.g. hybrid cars, etc.


Section B.

1. Risk management

Financial risk

The risk of becoming unprofitable is high for the company. Toyota has experienced financial losses. It has opened a lot of locations worldwide and accounted for growth of sales. However, the loss of competitive advantage combined with global financial recession might seriously affect Toyota’s revenues. The company can sustain this risk by improving its quality control process, offering compensation for the owners of recalled cars, and by offering various incentives for new customers.

Political risk

Political instability in the world, war conflicts and trade regulations might affect Toyota’s sales. It is difficult for the company to sustain this risk, and the optimal approach is to establish cooperative agreements with different countries.

Economic risk

The demand for cars has fallen compared to the pre-recession times. Toyota is vulnerable to recession risks. It is possible to sustain this risk in a reasonable manner by making the manufacturing process more cost-effective, attracting customers with incentives and programs for loyal clients, and investing into innovative products.

Social risk

Currently the risk of social ostracism is high for Toyota. The company can significantly mitigate this risk by showing public apologies, and providing proofs of improvement of its manufacturing process. In addition, Toyota should improve its crisis management, and offer better compensation for customers whose cars appeared to be defective.

Legal risk

Different countries have different regulations regarding quality. The risk of litigations related to non-compliance with laws is high. In order to avoid such litigations as were imposed by the NHTSA in the US, Toyota has to deliver the responsibility for compliance with legal regulations to its foreign departments, and to set more clear standards with regard to compliance.

Technology risk

The risk of losing competitive advantages due to innovations of competitors is moderate. Toyota is currently one of the leaders in car innovation. In order to further mitigate this risk, the company should invent into R&D activities and focus on knowledge management rather than on rapid expansion.

Operational risk

Toyota is facing high operational risks due to its recent recall of cars and consequent crisis. The company suffered significant losses, and lost its reputation of quality brand. Toyota can somewhat sustain this risk by improving its quality control procedures and reporting to the public about this, but it is only possible to reduce the risk to a low extent.

Future risk

Risk of natural disasters and nuclear contamination; it is affecting the whole Japan, and might seriously affect Toyota’s operations; Toyota can moderately sustain this risk by intensifying its overseas operations and providing support for the national recovery programs.



2. Corporate governance

In general, corporate governance means the collection of regulations, processes, customs, policies and institutions that affect the process of company’s governance. There are many stakeholders involved into this process, and all these aspects should be taken into account when developing and implementing corporate strategy.

Among the strengths of Toyota’s corporate governance there are the manufacturing system of Toyota, its worldwide connections with suppliers and distribution centers, and organizational design. The principles of the governance and of the interaction of the chairman of the Board of Directors and CEO are also a strength for Toyota. At the same time, there is a number of weaknesses for Toyota corporate governance. First of all, the procedure of selection of CEO should involve all stakeholders, since in this way the opinion of all relevant sectors can be expressed. In addition to this, the Board of Directors should have a more critical approach to the decisions of the CEO and especially to the changes in corporate culture and management. In addition to this, the company should consolidate all its departments and make the structure of cooperation of foreign departments and mother company not vertical, but matrix. This means that each department should be responsible for the results of its productions, for compliance with legal regulations (e.g. in case of US department of Toyota) and the whole system should be organized according to functionality instead of vertical hierarchy.



Section C.

  1. SWOT analysis based on the case study

(SWOT analysis for Toyota company basing on the case study)


ü      Research and innovation leadership

ü      Hybrid cars

ü      Diverse manufacturing locations

ü      Unique production system

ü      Relationships with suppliers


ü      Problems with corporate culture

ü      Lack of manufacturing quality

ü      Losses due to litigation and decreasing sales

ü      Strong competition


ü      Addressing new target segments

ü      Entering low-cost car market

ü      Becoming a leader in own customer segment

ü      Cost-effective production due to locations overseas


ü      Decline of customer loyalty

ü      Negative public opinion

ü      Legal regulations

ü      Further recalls and litigation

ü      Economic recession




Qumer, S.M. 2000. Crisis Management of Toyota. ICMRCenter for Management Research.


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