Business case study – Toyota’s organizational structure

Introduction

Japanese automaker Toyota has long been seen as a case study in organizational structure. Explore Toyota's customer first, quality first mantra, centralized decision-making strategy, advantages and disadvantages of the system, production problems, and global organizational structure.

Customer First, Quality First

'Customer first, quality first' is the policy that drives Toyota. How is it that the company's able to make both the customer and quality a priority? Toyota would say the answer is in its organizational structure. A company's organizational structure describes how an organization accomplishes its goals, decides the tasks that need to be performed, and who makes the decisions.

Toyota's production system and its organizational structure had long been praised as the most efficient and effective, which created a culture of excellence. They use what they call a just-in-time (JIT) production system, which means raw materials are delivered to the production facility just as they are needed. This level of production is possible because of Toyota's organizational structure, and that structure has undergone some significant changes since 2013. Let's look more closely at the organizational structure of the company before 2013, and then take a look at what has changed and why.

Centralized Decision Making

For most of its existence, Toyota's organizational structure was based on a traditional Japanese business hierarchy in which the most senior executives make all of the decisions for the entire organization. It is typified by little delegation of authority, and all information flows one way: from the top down. For example, executives in U.S. plants are closely monitored by a Japanese counterpart who makes sure the American executive is following structured protocols. This is called centralized decision making. While centralized decision making supports the business goals and strategies identified by the board of trustees, it also means that as a whole, the organization reacts slowly to external threats or internal weaknesses.

Advantages & Disadvantages

There are many advantages to having a centralized organizational structure. It stands to reason that if one group of people knows exactly what is happening in the facilities across the world, they can ensure that each factory has exactly what it needs when it needs it. Therefore, capacity to produce is used at its maximum efficiency. Other advantages of this type of structure include a global supply chain, a strong brand image, and the ability to put into play innovative concepts on multiple fronts.

The disadvantage to this type of organizational model is that such a strict hierarchical structure tends to promote secrecy; only the people at the top know what is going on. This can be hugely damaging when there are massive product recalls, quality problems, (poorly placed or incorrect floor mats under the driver’s seats which could lead to uncontrolled acceleration in a range of models) such as what happened with Toyota in the late 2000s where a fiery crash in California, an accelerator of a Lexus Sedan got Stuck, resulting in the Driver’s death.

Production Problems

Historically, Toyota and its brand were synonymous with quality. In fact, in 1989 when there were problems with Toyota's Lexus lines, the cars were recalled and fixed efficiently, showing the customer first policy in action.

Beginning in the 1990s, the organization grew faster than expected. In fact, there was a 6% growth in 2009 alone. This fast growth and need to produce more and more resulted in some problems with production. In 2009, brakes on certain models were found to have issues. While the problem was known by the upper-level executives of Toyota, they did nothing about it until the U.S. transportation secretary confronted them.

The United States secretary of transportation is a cabinet-level position responsible for maintaining and improving the country's transportation system

In 2010, a problem with unintended acceleration sparked recalls of eight million vehicles. Obviously, something was very wrong, and the senior executives at Toyota realized they had to do something, as they were failing to maintain the policy of 'customer first, quality first.'

Global Organizational Structure

In 2013, Toyota's executives changed the company's centralized organizational structure to a more global organizational structure. Global organizational structure allows for more delegation of authority and openness in communication.

Structurally, this translated into two division structures: product-based and geographical. As you can see in this chart, the product divisions are the four across the top: Lexus, Toyota 1, Toyota 2, and Unit Center. Toyota 1 and Toyota 2 are further separated out into geographical divisions that allow decisions to be made based on the needs of a particular product and the local market conditions. The Unit Center product division concentrates on issues related to the engines and transmissions of the vehicles.

Summary

The Toyota organizational structure before 2013 was typical of the standard Japanese business model. It was hierarchical and very centralized, and all decisions were made at the corporate headquarters in Japan, with very little delegation of authority. While this structure had an advantage in terms of providing a global supply chain and control of all processes from one central authority, its major disadvantage was the inability to react quickly to issues that come up. When the company expanded in the 1990s, this centralized structure proved cumbersome. As a result, many quality issues were not caught or rectified in time.

Realizing this was a turning point in the business and that something needed to be done, Toyota changed its organizational structure to a more decentralized structure, which allowed for a quicker decision making process and more attention to the needs of the regional market.

Task1:
Answer the following questions(short answers):

a. What was the organizational structure before the change in 2013? PC 1.1

b. What are the benefits (advantages) of the previous organizational structure? PC 1.1

c. What was the new organizational structure chosen by Toyota and its purpose? PC 1.2

d. Please draw the organizational structure chosen by Toyota and identify its type. PC 1.1

e. What was the reason behind the shift in the organizational structure, if there was an issue please identify.

f. Identify a role related to the case study and clarify their contributions in the organization based on their roles and responsibilities PC 1.5