Critically evaluate Toyotas strategic development since

the 1980s using the suitability, feasibility and

acceptability criteria. Pay particular attention to the
most recent strategic developments.
Toyota has always been known in automobile history as innovative organisation mainly in
production system and to cut cost while taking the quality of products to higher stages,
Toyota has policy to simplify the product as well as production system.

Consolidation and market development Strategy

Toyotas Market development strategy is based on Zero-nize which mean develop cars
which are eco-friendly and safer design to eliminate accident ratio. Toyota Prius 2 nd
Generation is result of this strategy and Maxi-mize which describes peace of mind and
comfortable driving experience for its customers, Lexus RX400h and Highlander HV (SUVHV) is product of Toyota which combines Eco-friendly drive with experience of powerful
drive. (Toyota Financial Report Y2005)
Toyotas Consolidation strategy to expand its production facilities around the world starts
back in 1984 when Toyota Joint Venture with GM Motors in USA, its basic intention was to
cut the cost of exporting cars to its US market directly from Japan.
Internationally Toyota has gone into joint ventures with native companies to develop local
market. Such as in China, Toyota has Joint Venture with First Automobile Works for the
production of Prius outside Japan. But later with the integration of EU had opened new
horizons for Toyota and in 1995 there were 25 production bases in 18 countries but by end of
2005 it has 51 production bases in 26 countries. (Toyota Financial Report Y2005)
Toyota will boost sales by utilizing Government eco-friendly promotions but also will
develop markets in resource rich and emerging countries. According to BBC (2007) Toyota
has announced in its financial report of third Quarter 2007 that it has sold 2.348 million cars
around the world and has become worlds largest automobile company by sales.
Toyota has always opposed and remain against is strategy to acquire competitor company
because the reason was simple it would be impossible to introduce and gain the benefits of
the TPS that was core and main competitive advantage of company.

Product Development and diversification Strategy

Toyota has shifted its product development Strategy to meet market demands; environmental
friendly technology is becoming core of its products.
It is widely assumed that Toyotas success starts and ends with its production system that is
true at some extent because Toyota Production System (TPS) is first step towards optimizing
all functional processes but next step is Toyotas product development strategy which is based
on lean principle that is relentless drive to improve efficiency and eliminate waste during the
whole production process by doing more of everything by doing less of everything. (Womack
et. al, 1991) With respect to speed to market and product freshness Toyota can develop new
product from new body to carryover chassis to styling freeze with in just 15 months such as
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its brand Corolla takes only 12 months while it take 24-36 months for other manufacturers to
accomplish the same task. (Morgan 2006)
In 1983 Toyota secretly started developing a luxury car in move to compete with other large
companies around the world under project F1 which was later launched as Lexus LS in 1989,
before the launch of Lexus Toyota was considered as economical small car maker in
automobile industry. (May, Matthew, 2006)
Toyota has always innovative and cost effective strategy when it comes to develop new
products such an example is launch of Prius in 1997 was one of Toyotas best strategic move
as it has made it first ever mass produced hybrid car in the world and has loudly express
Toyotas message of sustainability and environmental friendly to world. Toyota has captured
Chinese Automobile market by production of Prius in China by Joint Venturing with First
Automobile Works. This was first ever Toyota has started production of Prius outside Japan.
According to Morgan (2006) it is interesting to speculate that behind Toyotas product
development success there is secret of ancient Samurai techniques and an army of experts or
cross networked supercomputer which design its products but it has been made simpler by
executives at Toyota that It is just common sense engineering but it does not seen that
common outside Toyota.
It is very clear that Toyotas Product development strategy is very clear and straight forward
which is hard work, planning carefully and precision in implementing its ideas with addition
to continuous improvement in process by learning.
Toyota is large producer of conventional cars and jeeps which operates on gasoline but it has
diversified its technology with in automobile division of its business to eco-friendly cars such
as Prius, Rav4-EV and Lexus which operates on hybrid technology. Hybrid technology cars
are self-rechargeable battery power and gasoline switching. Plug in electric cars are still
under development phases in Japan and Toyota has announced to release and 2 nd generation
of Rav4-EV by 2012 which is under development in joint venture with Tesla Motor Inc. in
USA. Customer awareness to environmental friendly technology has raised demand for
hybrid cars as sales in 2003 were 180,000 which has increased to 1,410,000 in 2008.

Figure: Hybrid Vehicle Sales

2

Source: Adapted from Toyota Year 2008 Final Report

To meet High expectations of customers and demand for eco-friendly cards Toyota iQ was
launched in 2008 in Japan which is micro car operates of gasoline and has very low carbon
emissions 99g/km. But Toyota has announced is looking forward to develop compact hybrid
cars in future in response to changing demand who want smart and more attractive cars while
enjoying hybrid drive.
Furthermore apart from automobile Toyotas has great interest in Robotics as it has
showcased its first Partner Robot in 2004 which will be used for elderly care. (BBC, 2004)

Cost Leadership Strategy

In 2000 Toyotas Katsuaki Watanabe who was its executive vice President had launched
construction of cost competitiveness for 21st century (CCC21) initiatives in order to save
further by cutting cost of 180 key parts up to 30% across the board by simplified the way
there are designed, Oversized monolithic equipment such as aluminium caster .(Bloomberg
Business week) This initiative has saved Toyota nearly $10 billion over cost and success on
this had made it leader in industry on cost and quality leader. According to Watanabe Toyotas
problem is not to beat its rival GM in sales or to outfoxing domestic rival Nissan but he
believes its complacency because when a company become successful it become arrogant
which according to him is a Threat.
Toyota has changed its cost leadership strategy not only to become a successful in industry
but also this shift has also happened because of change in environment. In late 1990s rise of
china in automobile industry and appreciation of Yen towards US Dollar but also in response
to adaption of Kyoto Protocol in 1997 which is international agreement towards global
warming. (UNFCCC, 1997)
Value Innovation Program (VI) was launched by Toyota in a move to cut further cost on
individual products and on individual parts being used in products. (See Appendix A)

Ansoff matrix analysis

Existing Products
Market penetration
Existing Markets

New Product
Product Development

Luxury cars such as Lexus

and Crown launched in USA
and Japan.
Eco-friendly and Hybrid cars
are produced in Japan and
USA and other parts of world.
Sports Utility Vehicles are
being produced in USA and
Japan and sold around the

New Manufacturing facilities

are being consolidated in
different parts of world such
as, St. Petersburg, Texas and
Middle East.
New emerging markets in
central Asia.
South Asian Markets
African Countries are high

Market Development

New Markets

Table: Ansoff Matrix

More efficient Generation of

Luxury cars are being
produced in USA and Japan
in JV with other Companies.
Eco-friendly cars such as
Prius plug in; Electric cars are
being developed in Japan and
USA and being sold and
marketed around the world.

Diversification

Compact and Eco-friendly

vehicles
Fuel Efficient engines to meet
Toyota Finance to provide
financial help to customers
such as car finance and
leasing.
Robotics is futuristic
approach towards facilitating

Source: Adapted from (Luck. 2008)

Ansoff matrix of growth will help us decide on strategy in existing products or with new
products and same as in existing market or in new market. This analysis will suggest
competitiveness of environment is affected by intensity of competition rivalry and degree of
differentiation, existing market growth and exploration of new markets, life of existing
products and new product launches.
Toyota Production System (TPS) is most stable strategy which bases and supports its other
strategy. Constant improvement and simplifying the TPS has provided Toyota with stable and
strong financial statements for decades. Launch of Prius was very iconic in automotive
industry as first ever mass produced hybrid fuel efficient car. Producing of Hybrid and ultrafuel efficient vehicles has made Toyota master of game in 2009 by making it worlds largest
automobile company in the world and Hybrid vehicle sales were increased massively around
the world. But in 2009 Toyota volunteer to recall approx. 4 million Prius over several issues
from driver side mat to braking problem which was historical product failure for company.

Cost leadership is a proven strategy of Toyota in company history; Launch of construction of

cost competitiveness for 21st century (CCC21) to cut cost on design and production of 180
key parts had saved Toyota around 10billion over cost. Value innovation (VI) was another
cost cutting strategy which was very successful and objective was to cut further cost on
4

individual product itself by working closely with suppliers to cut cost of each part. Toyota
Crown sedan was the result of this strategy (See Appendix A) where price was kept capped
but design and features were improved than previous version.
Toyota Financial analysis
Gross Profit Margin (%) Gross Profit x100
Sales
18.95 trillion in sales was declared by Toyota for year 2010 the cost of goods totalled
15.27 trillion, or 80.6% of sales (i.e., the gross profit was 19.4% of sales). This gross profit
margin is better than the company achieved in 2009, when cost of goods sold totalled 82.6%
of sales.
Gearing Ratio (%)

Long-term loans x100

Capital employed

Gearing ratio is an assessment of the extent to which Toyota is financed by long term loans.
Higher the ratio will be great the company will become riskier for lender which may result in
high interest rates.
Gearing ratio for year 2010 is 35.67% which is higher than gearing ratio of year 2009 34.11%
These ratios show us Toyota has more long term loan than it has in 2009 but in mean while it
is noteworthy that in 2009 economic recession Toyota had to seek bailout help from Japanese
Government. (Toyota Financial report 2009, 2010)
As of March 2010, the company's long term debt was 7.02 trillion and total liabilities (i.e.,
all monies owed) were 19.30 trillion. The long term debt to equity ratio of the company is
0.64.
As of March 2010, the accounts receivable for the company were 6.46 trillion, which is
equivalent to 124 days of sales. This is higher than at the end of 2009, when Toyota Motor
had 100 days of sales in accounts receivable.
Although these figures shows Toyota a risky company and its sales has plunged up to
1.59trillion less than 2009 sales but still Toyotas above discussed strategies are not failed but
had performed to minimum expectations but we can argue on the effects of global economic
recession had changed the environment for company to perform well.
Now we will analyse external forces with PEST to evaluate their impact on Toyotas future
business strategy. (See Appendix B)

SWOT Analysis
Strength, Weakness, Opportunity, Threats analysis will evaluate Toyotas internal
environment by evaluation of its strengths and weaknesses and will evaluate opportunities
and threats which are result of external environmental change in industry.

Strength
Toyota has many strategies which behave as its strength such as its strong Production system
which is constantly being simplified and improved, which results in successful product
development. Toyotas innovation of Hybrid technology has made it market leader and it is
also its main strength. Being market leader with largest sales of 9.97million vehicles has
5

made Toyota a strong brand. Toyota has partnerships around the world to develop new
vehicles as well as manufacture existing products gives it strength to compete in the region
with its competitors.
Weakness
Being largest automobile company has its own weaknesses. Toyota markets its most of
products in Japan and USA and therefore it is exposed to economic and political fluctuations
in those regions. Perhaps this is why company has to shit its attentions to emerging markets
such as china and Asia. Further movement in exchange rates has already left narrow margins
in car market. Further Toyota needs to keep producing cars in order to retain its efficiency.
Car plants represent huge investments in expensive fixed cost, as well as high cost of training
and retaining labour. So in case of downturn in market company will see an overcapacity and
vice versa in case of upturn demand.
Opportunity
Automobile industry is growing every day so the technology is improving due to change in
economic environment international oil prices are soaring and affecting fuel prices so demand
for hybrid and electric vehicles is rising due to their fuel efficiency. Still there are
opportunities to be explored in emerging markets such as in South Asia and in Africa due to
rate of inflation fuel efficient cars are high in demand but lack of service bases and marketing
is keeping those markets off road.
There are many hybrid drive vehicles are available in market but still opportunity is there to
produce Hydrogen fuelled and Compressed Natural Gas powered vehicles although they are
ultra-fuel efficient vehicles but not produced on mass scale around the world.
Threats
Technology used in vehicles is subject to failure which result in massive recalls of products
and could cost millions to companies. Recall of products is one of threat which most
companies cannot avoid as it cannot be predictable but this could result in losing customer
confidence in brands. Rising prices of fuel is threating the sales around the world with
addition to economic down turn is also a threat to sales.

Conclusion
In conclusion we can assume that Toyota is one of strong brand in the automobile industry
due to its strategy to constantly improve its production system and development of new
technologies to meet customer demand. After our analysis of company threats and
opportunities are identified to company in order to change its product development strategy
to produce vehicles which can meet those new emerging markets.

To what extent is Toyota an innovative organisation? Evaluate both

product and process innovation, and identify and discuss examples of
disruptive innovations for Toyota. Would you describe Toyota as a first
mover or a fast follower and why?
Innovation raises fundamental strategic dilemmas for strategists. There is a lot of difference
in Innovation and Invention itself. Invention means conversion of new knowledge in new
product especially which is not available to world before, Such as telephone was an
invention. Where Innovation involves already available process, system or product but is
transformed into better shape by adding new features such as Television has today
transformed into more smart and compact LCD version.

Toyota Invention and Innovation

Historically it is proven that Toyota is an innovative company especially process innovation
such as Kaizen which is base of Toyotas production system. It provided most simplified and
best production system so far available to world which was originated as a means of
achieving mass production efficiencies with small production volumes. Its Production system
is being followed by many other car manufacturers in Japan and other parts of the world.
Product Innovation from Toyota is directly related with its Production system. As Toyota was
first automobile manufacturer in the world to produce Hybrid cars (Prius) on a mass scale.
Hybrid technology was not invented by Toyota but had adapted it for its vehicles.
Further innovation introduced in TPS to cut cost in production process well known recent
strategies in that case was CCC21 and Unit & Material Manufacturing Reform (UMR)
Toyota gives very high importance to its R&D department which works constantly to
embrace Toyota with new ways to get successful in industry. In 2010 financial report Toyota
has pass 2009 as very bad year for company due to recession effects on figures and aim to cut
cost to expenses around in company but still it had aimed not cut cost on R&D department.
(Toyota financial results 2010)
Its innovations has not stopped at TPS but it has revolutionize products as well by improving
already existing products or has bring in new car models which are fuel efficient,
environmental friendly vehicles. Prius is most known brand of Toyota in the world when we
discuss hybrid technology but Toyota has not even launched it but now in 2010 as of third
generation is highly sophisticated than its previous models but also has been more fuel
efficient.
Product or Process innovation is time consuming and slow process due to it requires several
pre market lab tests to make sure it is stable to go ahead. Is has been put forwards as a
strategy of Toyota to minimize the time to launch of new products in market and speed up its
development time.

Dominant design established

from

Innovation Rate

of

Product
Innovation

Process
Innovation

Figure: A
dynamic model
process and
product
innovation
Source: Adapted
Johnson and
Scholes (2010)

Robotics
is
another division
of Toyota which develops robots with futuristic vision of company; Industrial robots were
launched by Toyota in 1980s to reduce cost at its factories and now in 21 st century Toyota has
innovated same industrial robot with the launch of Toyota partner robot which is meant to
work for domestic part of life especially with elderly care.
Time

Toyota innovative products

Product innovation is one of those reasons which has made Toyota world leader in
automobile industry. Toyota Prius is most important and well known innovative product of
company. Prius was launched in 1997 but difference it had made in automobile market was it
was hybrid engine car which use gasoline and battery powered electric as fuel.
Prius was first of its kind to be produced on mass scale and that was the time other car
manufacturers were still developing such technology. Prius has captured market due to its
fuel efficiency and was proved to be a disruptive innovation in automobile history. Second
generation of Prius shape had been changed to more smarter and compact car than its
previous version. But third generation of Prius has again revolutionized the market even it
has gone through product recall due to mechanical failure of parts.
Toyota has changed the way Prius was built by total change in system such as batteries were
no longer boxed as excess to weight of car but has been fitted in a way that it balances in car
overall weight. To meet best fuel economy aerodynamics has been used in shape design of
car. Different driving modes are introduced and most importantly car has a solar powered fan
on its roof which cools down the cabin so driver does not have the blast of air conditioning
while first entering the car which saves further fuel and energy of car. (Working Knowledge,
2009)
Toyota has created more than 1000 patents during the development of Prius resulting EPA
estimated city/highway with rating of 72mpg in urban and 76mps in ultra-urban areas and
combined 72mpg.

Toyota as First Mover or Fast Follower

When we are discussing product or process innovation Toyota has always been first mover
strategy but still keeping in mind that Toyota has introduced many innovative products such
as Hybrid vehicles but they are still not marketed in many emerging markets yet. This is
because it is very risky for Toyota to deploy that technology in those markets and barriers in
those regions could get it failed. But still Toyota has not open strategy about this that will it
move first than any other company in those markets with its Hybrid technology. But yes in
markets like USA, JAPAN, Europe it has first mover advantage over others.
In meanwhile Toyota has been fast followers in some cases such as Lexus brand was part of
its fast follower strategy. Lexus was developed in 1980s to compete with its competitors in
USA in Premium luxury cars. Although other car manufacturers had moved first in market
with luxury car brands but Toyota had fast followed and Lexus was launched in late 1980s
and was a historic success in the market. (May, Matthew E. 2006)
In other areas of Toyotas product line such as Robotics we can consider it as fast follower
because it is not being produced on mass scale and not available in market but product
development process is heading to further stages.

Appendix A
Value Innovation (VI) Program
Raw material prices were soaring to battle this challenge in 2005 Toyota hadd further
announced and launched Value Innovation (VI) Program which was to increase quality and
lower the cost on individual products by working closely with its suppliers to cut cost of
individual parts.
After launch of this program analysts were keen to see what result actually Toyota is trying to
come up with and what would be cost of car and features and competitiveness of its parts
suppliers. In 2008 Toyota revealed newest iteration of its Crown sedan which was created
under Value Innovation (VI) program and this was expected to save company 1.4billion per
year. (Reuters, 2008)
Toyota was able to cap the price of car and further had added more safety and other features
such as microcomputer to control electrical functions which were not available in previous
generations.

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Appendix B
PEST analysis
Political
Politics of any region around the world has very extensive impact on any industry as well as
automobile industry. In UK Eco-friendly vehicles which produce carbon emissions less than
100g/Km are exempt from congestion charges in Central London area and subject to low road
tax charges. But in the mean while conventional vehicles are subject to high charges of taxes.
In one way producing environmental friendly cars are advantage in some countries but in
others this has not any affect because absence of any such law which privilege them over
others. High duties in some countries on vehicles are up to 200% which decrease
attractiveness of driving and is one of biggest threat to sales and act as a barrier to reach most
potential customers.
Political stability of region also decides fate of automobile industry as instability in
governments are threats to previously made contracts and laws which benefits industry.
Automobile Industry cannot provide services bases all around the country in some regions
due to safety and security of its engineers which is a threat e.g, Potential Customer demand
for Hybrid and fuel efficient vehicles are high in many African and Asia countries but due to
absence of proper service and inspection bases companies do not market those products.

Economic
Automobile industry survives in any region of world on the bases of economy of native
country or region. Economic recession around the world in 2009 has deeply impacted
automobile industry as sales gone down for few and in meanwhile many have to file
bankruptcy.
In meanwhile in regions where economic condition is not very good therefore government
has placed many barriers on new cars such as increased taxes or most importantly high and
keep rising fuel prices are biggest threat to automobile industry.

Social
Local culture and social life is also very important roles or public preference travel. In many
countries and region People prefer to use public transport due to its efficiency and fare prices
which is threat for automobile industry in that country and countries like china bicycle is one
of preferable source of short travel distances. Many groups who aggressively who opposes
automobile industries due to in harmfulness to environment also is a threat to industry.

Technological
Today technology plays very basic and important role in successfulness of any industry
including automobile industry. New technological inventions have plays very positive impact
on sale of vehicles around the world such as launch or fuel efficient vehicles and intelligent
driving features. Technological failures also mean while become a threat to automobile
industry because of public trust on those technologies. Furthermore, developing new
technologies is time taking and long process which is also believed to be a threat to sales for
automobile industry.
11

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